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NETGEAR® Reports Third Quarter 2023 Results

Q3 net revenue of $197.8 million, above the high end of guidance

Q3 GAAP gross margin of 34.8%; non-GAAP gross margin of 35.0%

Q3 GAAP operating margin of (0.3)%; non-GAAP operating margin of 2.7%, above the high end of guidance

844,000 paid subscribers for 26.7% growth year over year

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 third quarter ended October 1, 2023.

  • Third quarter 2023 net revenue of $197.8 million, a decrease of 20.7% from the comparable prior-year quarter.
  • Third quarter 2023 GAAP operating loss of $0.6 million, or (0.3)% of net revenue, as compared to operating loss of $2.2 million, or (0.9)% of net revenue, in the comparable prior-year quarter.
    • Third quarter 2023 non-GAAP operating income of $5.3 million, or 2.7% of net revenue, as compared to operating income of $1.8 million, or 0.7% of net revenue, in the comparable prior-year quarter.
  • Third quarter 2023 GAAP net loss per diluted share of $2.87, as compared to net income per diluted share of $0.10 in the comparable prior-year quarter.
    • Third quarter 2023 non-GAAP net income per diluted share of $0.23, as compared to net income per diluted share of $0.21 in the comparable prior-year quarter.

The accompanying schedules provide a reconciliation of financial measures computed on a GAAP basis to financial measures computed on a non-GAAP basis.

Patrick Lo, Chairman and Chief Executive Officer of NETGEAR, commented, “I’m very pleased with our performance in the third quarter, as NETGEAR delivered results that exceeded our guidance ranges for both the top and bottom lines. Our revenue performance during the seasonally strong back-to-school quarter was bolstered by strong demand for our premium CHP products in both the retail and service provider channels, namely our Orbi 8 and Orbi 9 and 5G mobile hotspots. We are excited by the market’s reception to the launch of our industry-leading WiFi 7 products, the Orbi 97x mesh system at $2299 and the Nighthawk RS700 router at $699, which began shipping in the final two weeks of the quarter. Furthermore, with the retail networking market showing signs that it is stabilizing, we are encouraged by our retail channel partners maintaining, rather than depleting, their inventories. On the SMB side, we continue to be encouraged by growth in our ProAV managed switch products. However, the uncertain macro environment created by high interest rates, geopolitical tensions, and stagnant or negative GDP growth in major markets such as Greater China, Germany and Japan weighed on our SMB business. Accordingly, our SMB channel partners continue to reduce their inventory carrying levels, which will limit our top line potential for this business in the coming quarters.”

Mr. Lo continued, “We grew our paid subscribers to 844,000 in the third quarter, which drove service revenue up by 25% year over year, and remain on track to end the year with 875,000 paid subscribers. Our CHP strategy of focusing on the high margin, premium end of the market and growing service revenue is proving to be effective in improving the gross margin of our CHP business. As a result, our overall non-GAAP gross margin reached 35% in the third quarter.”

Bryan Murray, Chief Financial Officer of NETGEAR, added, “We made tremendous progress in reducing our own inventory levels in the third quarter, which helped us generate meaningful cash in the quarter. We expect this trend to continue over the next couple of quarters as we aim to return inventory levels to pre-pandemic levels of three to four months. We also expect these efforts to continue to lead to further cash generation.”

Business Outlook

Mr. Murray continued, “We expect to continue to experience strong underlying demand in the premium portion of our CHP product portfolio, riding on the success of our WiFi 7 launch well into 2024. We are also encouraged that our retail channel partners are now maintaining rather than depleting their inventories. However, as interest rates remain high, we will continue to work with our SMB channel partners to optimize their inventory carrying levels during the next few quarters. Accordingly, we expect CHP to be approximately flat sequentially, in line with market seasonality, and SMB to be down sequentially which would result in overall fourth quarter net revenue in the range of $175 million to $190 million. As we continue to make meaningful progress in reducing our own inventory levels, we will be consuming older, higher cost inventory. We expect we will be back to normal inventory levels and normal inventory costs by the middle of next year. Accordingly, we expect fourth quarter GAAP operating margin to be in the range of (4.4)% to (1.4)%, and non-GAAP operating margin to be in the range of (2.0)% to 1.0%. Our GAAP tax expense is expected to be in the range of $1 million to $2 million, and our non-GAAP tax expense is expected to be in the range of $0 to $1 million for the fourth quarter of 2023. We expect we will continue to generate meaningful cash in Q4 and beyond.”

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

 

 

Three months ending

 

 

December 31, 2023

(in millions, except for percentage data)

 

Operating Margin

Rate

 

Tax Expense (Benefit)

 

 

 

 

 

GAAP

 

(4.4)% - (1.4)%

 

$1.0 - $2.0

Estimated adjustments for1:

 

 

 

 

Stock-based compensation expense

 

2.4%

 

-

Non-GAAP tax adjustments

 

-

 

$(1.0)

Non-GAAP

 

(2.0)% - 1.0%

 

$0.0-$1.0

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 third quarter results and discuss management's expectations for the fourth quarter of 2023 today, Wednesday, October 25, 2023 at 5 p.m. ET (2 p.m. PT). The toll-free dial-in number for the live audio call is (888) 660-6392. The international dial-in number for the live audio call is (929) 203-0899. The conference ID for the call is 1030183. 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.

For more than 25 years, NETGEAR® (NASDAQ: NTGR) has been the innovative leader in connecting the world to the internet with advanced networking technologies for homes, businesses and service providers around the world. As staying connected has become more important than ever, NETGEAR delivers award-winning network solutions for remote work, distance learning, ultra high def streaming, online game play and more. To enable people to collaborate and connect to a world of information and entertainment, NETGEAR is dedicated to providing a range of connected solutions. From ultra-premium Orbi Mesh WiFi systems and high performance Nighthawk routers, to high-speed cable modems and 5G mobile wireless products to cloud-based subscription services for network management and security, to smart networking products and Video over Ethernet for Pro AV applications, NETGEAR keeps you connected. NETGEAR is headquartered in San Jose, California. Learn more on the NETGEAR Investor Page or by calling (408) 907-8000. Connect with NETGEAR: Twitter, Facebook, Instagram, LinkedIn and the NETGEAR blog at NETGEAR.com.

© 2023 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: NETGEAR’s future operating performance and financial condition, including expectations regarding growth, revenue, operating margin, gross margin, continued profitability and cash generation; expectations regarding continuing market demand for the NETGEAR’s products and services, including SMB and premium CHP products and subscription services, and NETGEAR’s ability to respond to this demand; NETGEAR’s strategic shift to focusing on the premium, higher-margin segments of the market and growing service revenue; the timing, distribution, sales momentum and market acceptance of recent and anticipated new product introductions that position NETGEAR for growth and market share gain; expectations regarding the mix of NETGEAR’s premium products and services; expectations regarding the consumer retail networking market; expectations regarding inventory management and inventory costs and its impact to business segment growth and cash generation; expectations regarding expected tax rates or tax expenses; expectations regarding repurchases of NETGEAR’s common stock; expectations regarding NETGEAR’s small and medium business and service provider channels; expectations regarding price increases on NETGEAR’s products; expectations regarding service partners’ and retail channel partners’ inventory levels; expectations regarding seasonal shifts in market demand; expectations regarding revenue from the service provider channel; and expectations regarding NETGEAR's subscription services, paid subscriber base growth and service revenue. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: future demand for NETGEAR’s products may be lower than anticipated; NETGEAR’s shift in focus to premium products at the expense of lower end products may not prove to be successful; NETGEAR may be unsuccessful, or experience delays, in manufacturing and distributing its new and existing products and services; consumers may choose not to adopt NETGEAR’s new product and services offerings or adopt competing products and services; NETGEAR may be unable to continue to grow its number of registered users, its number of registered app users and/or its paid subscriber base and service revenue; product performance may be adversely affected by real world operating conditions; NETGEAR may fail to manage costs, including the cost of key components, the cost of air freight and ocean freight, and the cost of developing new products and manufacturing and distribution of its existing offerings; NETGEAR may fail to successfully manage channel inventory levels; NETGEAR may fail to successfully continue to effect operating expense savings; changes in the level of NETGEAR's cash resources and NETGEAR’s planned usage of such resources, including potential repurchases of NETGEAR’s common stock; changes in NETGEAR’s stock price and developments in the business that could increase NETGEAR’s cash needs; fluctuations in foreign exchange rates; and the actions and financial health of NETGEAR’s customers, including NETGEAR’s ability to collect receivables as they become due. 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 NETGEAR’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 NETGEAR’s quarterly report on Form 10-Q for the fiscal quarter ended July 2, 2023, filed with the Securities and Exchange Commission on August 4, 2023. 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 loss, non-GAAP operating margin, non-GAAP other income (expenses), net, non-GAAP net loss and non-GAAP net loss per diluted share. These supplemental measures exclude adjustments for amortization of intangibles, stock-based compensation expense, goodwill impairment, intangibles impairment, restructuring and other charges, litigation reserves, net, gain/loss on investments, net, gain on litigation settlements, and adjust for effects related to non-GAAP tax adjustments. 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, performance shares 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: goodwill impairment, intangibles impairment, restructuring and other charges, litigation reserves, net, gain on litigation settlements, 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.

Non-GAAP tax adjustments consist of adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure on non-GAAP net income (loss). We believe providing financial information with and without the income tax effects relating to our non-GAAP financial measures, as well as adjustments for valuation allowances on deferred tax assets, provides our management and users of the financial statements with better clarity regarding both current period performance and the on-going performance of our business. Non-GAAP income tax expense (benefit) is computed on a current and deferred basis with non-GAAP income (loss) consistent with use of non-GAAP income (loss) as a performance measure. The Non-GAAP tax provision (benefit) is calculated by adjusting the GAAP tax provision (benefit) for the impact of the non-GAAP adjustments, with specific tax provisions such as state income tax and Base-erosion and Anti-Abuse Tax recomputed on a non-GAAP basis, as well as adjustments for valuation allowances on deferred tax assets. The tax valuation allowance is a non-cash adjustment primarily reflecting our expectations of, and assumptions as to, future operating results and applicable tax laws, that are not directly attributable to the current quarter’s operating performance. For interim periods, the non-GAAP income tax provision (benefit) is calculated based on the forecasted annual non-GAAP tax rate before discrete items and adjusted for interim discrete items. Included in the non-GAAP tax adjustments for the three and nine months ended October 1, 2023, are adjustments to tax expense related to changes in our forecasts and the effects of a valuation allowance computed in accordance with GAAP.

Source: NETGEAR-F

NETGEAR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

October 1, 2023

 

December 31, 2022

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

131,459

 

 

$

146,500

 

Short-term investments

 

 

96,586

 

 

 

80,925

 

Accounts receivable, net

 

 

200,900

 

 

 

277,485

 

Inventories

 

 

280,918

 

 

 

299,614

 

Prepaid expenses and other current assets

 

 

30,713

 

 

 

29,767

 

Total current assets

 

 

740,576

 

 

 

834,291

 

Property and equipment, net

 

 

8,274

 

 

 

9,225

 

Operating lease right-of-use assets

 

 

39,773

 

 

 

40,868

 

Intangibles, net

 

 

 

 

 

1,329

 

Goodwill

 

 

36,279

 

 

 

36,279

 

Other non-current assets

 

 

17,563

 

 

 

97,793

 

Total assets

 

$

842,465

 

 

$

1,019,785

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

47,133

 

 

$

85,550

 

Accrued employee compensation

 

 

19,179

 

 

 

24,132

 

Other accrued liabilities

 

 

167,713

 

 

 

213,476

 

Deferred revenue

 

 

25,090

 

 

 

21,128

 

Income taxes payable

 

 

767

 

 

 

1,685

 

Total current liabilities

 

 

259,882

 

 

 

345,971

 

Non-current income taxes payable

 

 

12,760

 

 

 

14,972

 

Non-current operating lease liabilities

 

 

32,330

 

 

 

34,085

 

Other non-current liabilities

 

 

4,706

 

 

 

3,902

 

Total liabilities

 

 

309,678

 

 

 

398,930

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock

 

 

30

 

 

 

29

 

Additional paid-in capital

 

 

963,350

 

 

 

946,123

 

Accumulated other comprehensive income (loss)

 

 

9

 

 

 

(535

)

Accumulated deficit

 

 

(430,602

)

 

 

(324,762

)

Total stockholders’ equity

 

 

532,787

 

 

 

620,855

 

Total liabilities and stockholders’ equity

 

$

842,465

 

 

$

1,019,785

 

NETGEAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share and percentage data)

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

October 1, 2023

 

July 2, 2023

 

October 2, 2022

 

October 1, 2023

 

October 2, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

197,845

 

 

$

173,413

 

 

$

249,587

 

 

$

552,166

 

 

$

683,369

 

Cost of revenue

 

 

128,911

 

 

 

119,113

 

 

 

181,058

 

 

 

368,550

 

 

 

494,516

 

Gross profit

 

 

68,934

 

 

 

54,300

 

 

 

68,529

 

 

 

183,616

 

 

 

188,853

 

Gross margin

 

 

34.8

%

 

 

31.3

%

 

 

27.5

%

 

 

33.3

%

 

 

27.6

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

20,738

 

 

 

20,831

 

 

 

22,167

 

 

 

63,703

 

 

 

68,193

 

Sales and marketing

 

 

30,865

 

 

 

32,482

 

 

 

34,203

 

 

 

97,226

 

 

 

104,335

 

General and administrative

 

 

16,364

 

 

 

16,536

 

 

 

13,949

 

 

 

49,136

 

 

 

41,698

 

Goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,442

 

Intangibles impairment

 

 

1,071

 

 

 

 

 

 

 

 

 

1,071

 

 

 

 

Other operating expenses (income), net

 

 

544

 

 

 

2,229

 

 

 

361

 

 

 

2,881

 

 

 

931

 

Total operating expenses

 

 

69,582

 

 

 

72,078

 

 

 

70,680

 

 

 

214,017

 

 

 

259,599

 

Loss from operations

 

 

(648

)

 

 

(17,778

)

 

 

(2,151

)

 

 

(30,401

)

 

 

(70,746

)

Operating margin

 

 

(0.3

)%

 

 

(10.3

)%

 

 

(0.9

)%

 

 

(5.5

)%

 

 

(10.4

)%

Other income (expenses), net

 

 

2,280

 

 

 

7,999

 

 

 

638

 

 

 

11,685

 

 

 

(1,164

)

Income (loss) before income taxes

 

 

1,632

 

 

 

(9,779

)

 

 

(1,513

)

 

 

(18,716

)

 

 

(71,910

)

Provision for (benefit from) income taxes

 

 

86,431

 

 

 

(1,192

)

 

 

(4,314

)

 

 

84,382

 

 

 

(8,967

)

Net income (loss)

 

$

(84,799

)

 

$

(8,587

)

 

$

2,801

 

 

$

(103,098

)

 

$

(62,943

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(2.87

)

 

$

(0.29

)

 

$

0.10

 

 

$

(3.52

)

 

$

(2.17

)

Diluted

 

$

(2.87

)

 

$

(0.29

)

 

$

0.10

 

 

$

(3.52

)

 

$

(2.17

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used to compute net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

29,524

 

 

 

29,319

 

 

 

28,891

 

 

 

29,266

 

 

 

29,023

 

Diluted

 

 

29,524

 

 

 

29,319

 

 

 

29,029

 

 

 

29,266

 

 

 

29,023

 

NETGEAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Nine Months Ended

 

October 1, 2023

 

October 2, 2022

Cash flows from operating activities:

 

 

 

 

 

Net loss

$

(103,098

)

 

$

(62,943

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

5,491

 

 

 

7,845

 

Stock-based compensation

 

13,637

 

 

 

13,266

 

Gain/loss on investments, net

 

(2,301

)

 

 

342

 

Goodwill impairment

 

 

 

 

44,442

 

Intangibles impairment

 

1,071

 

 

 

 

Deferred income taxes

 

82,205

 

 

 

(13,895

)

Provision for excess and obsolete inventory

 

2,841

 

 

 

3,005

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable, net

 

76,585

 

 

 

1,250

 

Inventories

 

15,855

 

 

 

14,572

 

Prepaid expenses and other assets

 

(3,020

)

 

 

(2,858

)

Accounts payable

 

(38,443

)

 

 

13,432

 

Accrued employee compensation

 

(4,952

)

 

 

(4,329

)

Other accrued liabilities

 

(46,930

)

 

 

(23,504

)

Deferred revenue

 

4,771

 

 

 

3,268

 

Income taxes payable

 

(3,130

)

 

 

(2,692

)

Net cash provided by (used in) operating activities

 

582

 

 

 

(8,799

)

Cash flows from investing activities:

 

 

 

 

 

Purchases of short-term investments

 

(97,291

)

 

 

(143,933

)

Proceeds from maturities of short-term investments

 

85,006

 

 

 

50,418

 

Purchases of property and equipment

 

(3,601

)

 

 

(4,133

)

Purchases of long-term investments

 

(585

)

 

 

(450

)

Net cash used in investing activities

 

(16,471

)

 

 

(98,098

)

Cash flows from financing activities:

 

 

 

 

 

Repurchases of common stock

 

 

 

 

(24,377

)

Restricted stock unit withholdings

 

(2,742

)

 

 

(4,731

)

Proceeds from exercise of stock options

 

 

 

 

743

 

Proceeds from issuance of common stock under employee stock purchase plan

 

3,590

 

 

 

4,418

 

Net cash provided by (used in) financing activities

 

848

 

 

 

(23,947

)

Net decrease in cash and cash equivalents

 

(15,041

)

 

 

(130,844

)

Cash and cash equivalents, at beginning of period

 

146,500

 

 

 

263,772

 

Cash and cash equivalents, at end of period

$

131,459

 

 

$

132,928

 

NETGEAR, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

(In thousands, except percentage data)

(Unaudited)

 

STATEMENT OF OPERATIONS DATA:

 

 

Three Months Ended

 

Nine Months Ended

 

 

October 1, 2023

 

July 2, 2023

 

October 2, 2022

 

October 1, 2023

 

October 2, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP gross profit

 

$

68,934

 

 

$

54,300

 

 

$

68,529

 

 

$

183,616

 

 

$

188,853

 

GAAP gross margin

 

 

34.8

%

 

 

31.3

%

 

 

27.5

%

 

 

33.3

%

 

 

27.6

%

Amortization of intangibles

 

 

 

 

 

128

 

 

 

129

 

 

 

257

 

 

 

386

 

Stock-based compensation expense

 

 

354

 

 

 

342

 

 

 

283

 

 

 

1,047

 

 

 

1,027

 

Non-GAAP gross profit

 

$

69,288

 

 

$

54,770

 

 

$

68,941

 

 

$

184,920

 

 

$

190,266

 

Non-GAAP gross margin

 

 

35.0

%

 

 

31.6

%

 

 

27.6

%

 

 

33.5

%

 

 

27.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP research and development

 

$

20,738

 

 

$

20,831

 

 

$

22,167

 

 

$

63,703

 

 

$

68,193

 

Stock-based compensation expense

 

 

(841

)

 

 

(1,144

)

 

 

(968

)

 

 

(3,050

)

 

 

(3,150

)

Non-GAAP research and development

 

$

19,897

 

 

$

19,687

 

 

$

21,199

 

 

$

60,653

 

 

$

65,043

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP sales and marketing

 

$

30,865

 

 

$

32,482

 

 

$

34,203

 

 

$

97,226

 

 

$

104,335

 

Stock-based compensation expense

 

 

(1,271

)

 

 

(1,397

)

 

 

(1,249

)

 

 

(4,099

)

 

 

(4,275

)

Non-GAAP sales and marketing

 

$

29,594

 

 

$

31,085

 

 

$

32,954

 

 

$

93,127

 

 

$

100,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP general and administrative

 

$

16,364

 

 

$

16,536

 

 

$

13,949

 

 

$

49,136

 

 

$

41,698

 

Stock-based compensation expense

 

 

(1,819

)

 

 

(1,804

)

 

 

(940

)

 

 

(5,441

)

 

 

(4,814

)

Non-GAAP general and administrative

 

$

14,545

 

 

$

14,732

 

 

$

13,009

 

 

$

43,695

 

 

$

36,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP other operating expenses (income), net

 

$

544

 

 

$

2,229

 

 

$

361

 

 

$

2,881

 

 

$

931

 

Restructuring and other charges

 

 

(366

)

 

 

(2,229

)

 

 

(361

)

 

 

(2,703

)

 

 

(911

)

Litigation reserves, net

 

 

(178

)

 

 

 

 

 

 

 

 

(178

)

 

 

(20

)

Non-GAAP other operating expenses, net

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

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

 

Nine Months Ended

 

 

October 1, 2023

 

July 2, 2023

 

October 2, 2022

 

October 1, 2023

 

October 2, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP total operating expenses

 

$

69,582

 

 

$

72,078

 

 

$

70,680

 

 

$

214,017

 

 

$

259,599

 

Stock-based compensation expense

 

 

(3,931

)

 

 

(4,345

)

 

 

(3,157

)

 

 

(12,590

)

 

 

(12,239

)

Goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,442

)

Intangibles impairment

 

 

(1,071

)

 

 

 

 

 

 

 

 

(1,071

)

 

 

 

Restructuring and other charges

 

 

(366

)

 

 

(2,229

)

 

 

(361

)

 

 

(2,703

)

 

 

(911

)

Litigation reserves, net

 

 

(178

)

 

 

 

 

 

 

 

 

(178

)

 

 

(20

)

Non-GAAP total operating expenses

 

$

64,036

 

 

$

65,504

 

 

$

67,162

 

 

$

197,475

 

 

$

201,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating loss

 

$

(648

)

 

$

(17,778

)

 

$

(2,151

)

 

$

(30,401

)

 

$

(70,746

)

GAAP operating margin

 

 

(0.3

)%

 

 

(10.3

)%

 

 

(0.9

)%

 

 

(5.5

)%

 

 

(10.4

)%

Amortization of intangibles

 

 

 

 

 

128

 

 

 

129

 

 

 

257

 

 

 

386

 

Stock-based compensation expense

 

 

4,285

 

 

 

4,687

 

 

 

3,440

 

 

 

13,637

 

 

 

13,266

 

Goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,442

 

Intangibles impairment

 

 

1,071

 

 

 

 

 

 

 

 

 

1,071

 

 

 

 

Restructuring and other charges

 

 

366

 

 

 

2,229

 

 

 

361

 

 

 

2,703

 

 

 

911

 

Litigation reserves, net

 

 

178

 

 

 

 

 

 

 

 

 

178

 

 

 

20

 

Non-GAAP operating income (loss)

 

$

5,252

 

 

$

(10,734

)

 

$

1,779

 

 

$

(12,555

)

 

$

(11,721

)

Non-GAAP operating margin

 

 

2.7

%

 

 

(6.2

)%

 

 

0.7

%

 

 

(2.3

)%

 

 

(1.7

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP other income (expenses), net

 

$

2,280

 

 

$

7,999

 

 

$

638

 

 

$

11,685

 

 

$

(1,164

)

Gain/loss on investments, net

 

 

(14

)

 

 

19

 

 

 

(52

)

 

 

16

 

 

 

251

 

Gain on litigation settlements

 

 

 

 

 

(6,000

)

 

 

 

 

 

(6,000

)

 

 

 

Non-GAAP other income (expenses), net

 

$

2,266

 

 

$

2,018

 

 

$

586

 

 

$

5,701

 

 

$

(913

)

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

 

Nine Months Ended

 

 

October 1, 2023

 

July 2, 2023

 

October 2, 2022

 

October 1, 2023

 

October 2, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net income (loss)

 

$

(84,799

)

 

$

(8,587

)

 

$

2,801

 

 

$

(103,098

)

 

$

(62,943

)

Amortization of intangibles

 

 

 

 

 

128

 

 

 

129

 

 

 

257

 

 

 

386

 

Stock-based compensation expense

 

 

4,285

 

 

 

4,687

 

 

 

3,440

 

 

 

13,637

 

 

 

13,266

 

Goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,442

 

Intangibles impairment

 

 

1,071

 

 

 

 

 

 

 

 

 

1,071

 

 

 

 

Restructuring and other charges

 

 

366

 

 

 

2,229

 

 

 

361

 

 

 

2,703

 

 

 

911

 

Litigation reserves, net

 

 

178

 

 

 

 

 

 

 

 

 

178

 

 

 

20

 

Gain/loss on investments, net

 

 

(14

)

 

 

19

 

 

 

(52

)

 

 

16

 

 

 

251

 

Gain on litigation settlements

 

 

 

 

 

(6,000

)

 

 

 

 

 

(6,000

)

 

 

 

Non-GAAP tax adjustments

 

 

85,781

 

 

 

2,781

 

 

 

(715

)

 

 

87,724

 

 

 

(3,976

)

Non-GAAP net income (loss)

 

$

6,868

 

 

$

(4,743

)

 

$

5,964

 

 

$

(3,512

)

 

$

(7,643

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER DILUTED SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net income (loss) per diluted share

 

$

(2.87

)

 

$

(0.29

)

 

$

0.10

 

 

$

(3.52

)

 

$

(2.17

)

Amortization of intangibles

 

 

 

 

 

 

 

 

 

 

 

0.01

 

 

 

0.01

 

Stock-based compensation expense

 

 

0.14

 

 

 

0.16

 

 

 

0.12

 

 

 

0.47

 

 

 

0.46

 

Goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.53

 

Intangibles impairment

 

 

0.04

 

 

 

 

 

 

 

 

 

0.04

 

 

 

 

Restructuring and other charges

 

 

0.01

 

 

 

0.08

 

 

 

0.01

 

 

 

0.09

 

 

 

0.03

 

Litigation reserves, net

 

 

0.01

 

 

 

 

 

 

 

 

 

0.01

 

 

 

 

Gain/loss on investments, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.01

 

Gain on litigation settlements

 

 

 

 

 

(0.20

)

 

 

 

 

 

(0.21

)

 

 

 

Non-GAAP tax adjustments

 

 

2.90

 

 

 

0.09

 

 

 

(0.02

)

 

 

2.99

 

 

 

(0.13

)

Non-GAAP net income (loss) per diluted share

 

$

0.23

 

 

$

(0.16

)

 

$

0.21

 

 

$

(0.12

)

 

$

(0.26

)

NETGEAR, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)

(Unaudited)

 

 

 

Three Months Ended

 

 

October 1, 2023

 

July 2, 2023

 

April 2, 2023

 

December 31, 2022

 

October 2, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and short-term investments

 

$

228,045

 

 

$

202,836

 

 

$

239,210

 

 

$

227,425

 

 

$

233,197

 

Cash, cash equivalents and short-term investments per diluted share

 

$

7.71

$

6.92

 

 

$

8.24

 

 

$

7.85

 

$

8.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

200,900

 

 

$

179,496

 

 

$

192,540

 

 

$

277,485

 

 

$

259,908

 

Days sales outstanding (DSO)

 

 

92

 

 

 

94

 

 

 

98

 

 

 

100

 

 

 

95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories

 

$

280,918

 

 

$

324,483

 

 

$

337,187

 

 

$

299,614

 

 

$

298,090

 

Ending inventory turns

 

 

1.8

 

 

 

1.5

 

 

 

1.4

 

 

 

2.5

 

 

 

2.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weeks of channel inventory:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. retail channel

 

 

11.8

 

 

 

12.0

 

 

 

12.7

 

 

 

10.4

 

 

 

13.5

 

U.S. distribution channel

 

 

5.8

 

 

 

5.1

 

 

 

4.4

 

 

 

5.2

 

 

 

3.6

 

EMEA distribution channel

 

 

7.4

 

 

 

6.9

 

 

 

8.5

 

 

 

8.7

 

 

 

5.3

 

APAC distribution channel

 

 

13.1

 

 

 

12.4

 

 

 

14.0

 

 

 

18.5

 

 

 

16.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue (current and non-current)

 

$

29,796

 

 

$

27,689

 

 

$

26,634

 

 

$

25,025

 

 

$

22,868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Headcount

 

 

644

 

 

 

653

 

 

 

702

 

 

 

691

 

 

 

731

 

Non-GAAP diluted shares

 

 

29,581

 

 

 

29,319

 

 

 

29,040

 

 

 

28,959

 

 

 

29,029

 

NET REVENUE BY GEOGRAPHY

 

 

Three Months Ended

 

Nine Months Ended

 

 

October 1, 2023

 

July 2, 2023

 

October 2, 2022

 

October 1, 2023

 

October 2, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$141,018

 

71%

 

$116,611

 

67%

 

$169,360

 

68%

 

$379,551

 

69%

 

$458,036

 

67%

EMEA

 

35,684

 

18%

 

36,161

 

21%

 

44,827

 

18%

 

111,023

 

20%

 

126,643

 

19%

APAC

 

21,143

 

11%

 

20,641

 

12%

 

35,400

 

14%

 

61,592

 

11%

 

98,690

 

14%

Total

 

$197,845

 

100%

 

$173,413

 

100%

 

$249,587

 

100%

 

$552,166

 

100%

 

$683,369

 

100%

NETGEAR, INC.

SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)

(In thousands)

(Unaudited)

 

NET REVENUE BY SEGMENT

 

Three Months Ended

 

Nine Months Ended

 

October 1, 2023

 

July 2, 2023

 

October 2, 2022

 

October 1, 2023

 

October 2, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Connected Home

$

127,335

 

 

$

98,406

 

 

$

150,581

 

 

$

328,487

 

 

$

409,787

 

SMB

 

70,510

 

 

 

75,007

 

 

 

99,006

 

 

 

223,679

 

 

 

273,582

 

Total net revenue

$

197,845

 

 

$

173,413

 

 

$

249,587

 

 

$

552,166

 

 

$

683,369

 

SERVICE PROVIDER NET REVENUE

 

Three Months Ended

 

Nine Months Ended

 

October 1, 2023

 

July 2, 2023

 

October 2, 2022

 

October 1, 2023

 

October 2, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Connected Home

$

32,403

 

 

$

24,916

 

 

$

40,448

 

 

$

71,346

 

 

$

92,544

 

SMB

 

219

 

 

 

18

 

 

 

1,171

 

 

 

427

 

 

 

3,515

 

Total service provider net revenue

$

32,622

 

 

$

24,934

 

 

$

41,619

 

 

$

71,773

 

 

$

96,059

 

 

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