EX-99.1 2 exhibit99118q4earningsrele.htm PRESS RELEASE Exhibit


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NEWS RELEASE

NETGEAR® REPORTS FOURTH QUARTER AND FULL YEAR 2018 RESULTS

•
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, California - February 6, 2019 - 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.


Page 1


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.”


Page 2


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
GAAP
 
4.5% - 5.5%
 
27.0%
Estimated adjustments for1:
 
 
 
 
Amortization of intangibles
 
0.9%
 
__
Stock-based compensation expense
 
2.6%
 
__
Tax effects of non-GAAP adjustments
 
__
 
(2.5)%
Non-GAAP
 
8.0% - 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.

Contact:
NETGEAR Investor Relations
Christopher Genualdi
netgearIR@netgear.com



Page 3


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

Page 4


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

-Financial Tables Attached-

Page 5


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 investments
73,317

 
126,926

Accounts receivable, net
303,667

 
255,118

Inventories
243,871

 
162,942

Prepaid expenses and other current assets
35,997

 
24,826

Current assets of discontinued operations
—

 
243,125

Total current assets
857,899

 
1,015,664

Property and equipment, net
20,177

 
17,349

Intangibles, net
17,146

 
20,640

Goodwill
80,721

 
64,314

Other non-current assets
67,433

 
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 compensation
31,666

 
24,520

Other accrued liabilities
199,472

 
149,821

Deferred revenue
11,086

 
21,212

Income taxes payable
2,020

 
7,015

Current liabilities of discontinued operations
—

 
130,663

Total current liabilities
383,992

 
424,436

Non-current income taxes payable
19,600

 
31,544

Other non-current liabilities
12,232

 
8,766

Non-current liabilities of discontinued operations
—

 
13,333

Total liabilities
415,824

 
478,079

Stockholders’ equity:
 
 
 
Common stock
32

 
31

Additional paid-in capital
793,585

 
603,137

Accumulated other comprehensive loss
(15
)
 
(851
)
Retained earnings (losses)
(166,050
)
 
128,168

Total stockholders’ equity
627,552

 
730,485

Total liabilities and stockholders’ equity
$
1,043,376

 
$
1,208,564



Page 6


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 revenue
198,274

 
174,966

 
198,020

 
717,118

 
731,453

Gross profit
90,654

 
94,445

 
76,129

 
341,698

 
307,716

Gross margin
31.4
%
 
35.1
%
 
27.8
%
 
32.3
%
 
29.6
%
Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
19,143

 
20,136

 
19,397

 
82,416

 
71,893

Sales and marketing
38,251

 
37,892

 
36,667

 
152,569

 
138,679

General and administrative
14,454

 
16,184

 
14,385

 
64,857

 
54,346

Separation expense
550

 
379

 
—

 
929

 
—

Restructuring and other charges
830

 
1

 
19

 
2,198

 
97

Litigation reserves, net
10

 
—

 
108

 
15

 
148

Total operating expenses
73,238

 
74,592

 
70,576

 
302,984

 
265,163

Income from operations
17,416

 
19,853

 
5,553

 
38,714

 
42,553

Operating margin
6.0
%
 
7.4
%
 
2.0
%
 
3.7
%
 
4.1
%
Interest income
1,174

 
985

 
725

 
3,980

 
2,114

Other income (expense), net
85

 
955

 
440

 
510

 
1,557

Income before income taxes
18,675

 
21,793

 
6,718

 
43,204

 
46,224

Provision for income taxes
17,548

 
5,483

 
48,496

 
24,216

 
57,357

Net income (loss) from continuing operations
1,127

 
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 - Diluted
32,803

 
32,974

 
31,379

 
33,137

 
32,097



Page 7


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 margin
31.4
%
 
35.1
%
 
31.4
%
 
31.1
%
 
32.3
%
Amortization of intangibles
181

 
116

 
209

 
323

 
829

Stock-based compensation expense
681

 
619

 
572

 
563

 
2,435

Non-GAAP gross profit
$
91,516

 
$
95,180

 
$
81,061

 
$
77,205

 
$
344,962

Non-GAAP gross margin
31.7
%
 
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


Page 8


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 margin
6.0
%
 
7.4
%
 
0.0
 %
 
0.6
%
 
3.7
%
Amortization of intangibles
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

Non-GAAP operating income
$
27,051

 
$
28,273

 
$
10,536

 
$
10,436

 
$
76,296

Non-GAAP operating margin
9.4
%
 
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 intangibles
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

Gain on investments
(190
)
 
(349
)
 
—

 
—

 
(539
)
Impairment charges to investments
—

 
—

 
—

 
1,400

 
1,400

Tax effects of above non-GAAP adjustments
11,762

 
(312
)
 
(1,546
)
 
(2,886
)
 
7,018

Non-GAAP net income from continuing operations
$
22,334

 
$
24,069

 
$
9,580

 
$
8,466

 
$
64,449



Page 9


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 intangibles
0.06

 
0.06

 
0.06

 
0.06

 
0.24

Stock-based compensation expense
0.19

 
0.19

 
0.22

 
0.21

 
0.80

Separation expense
0.02

 
0.01

 
—

 
—

 
0.03

Restructuring and other charges
0.03

 
0.00

 
0.04

 
0.00

 
0.07

Litigation reserves, net
0.00

 
—

 
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 adjustments
0.36

 
(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







Page 10




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

 
 
 
 
 
 
 
 
Headcount
837

 
833

 
901

 
903

Non-GAAP diluted shares
32,803

 
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
%
EMEA
58,798

20
%
 
53,158

20
%
 
48,209

19
%
 
47,434

19
%
 
207,599

20
%
APAC
39,795

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
%


Page 11



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

SMB
73,290

 
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 margin
13.5
%
 
15.4
%
 
11.2
%
 
9.3
%
 
12.5
%
SMB
$
18,392

 
$
20,593

 
$
14,635

 
$
16,522

 
$
70,142

SMB contribution margin
25.1
%
 
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 income
1,174

 
985

 
1,073

 
748

 
3,980

Other income (expense), net
85

 
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

SMB
670

 
1,191

 
700

 
1,063

 
3,624

Total service provider net revenue
$
38,442

 
$
31,960

 
$
47,033

 
$
42,860

 
$
160,295




Page 12


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 margin
27.8
%
 
30.2
%
 
30.0
%
 
30.6
%
 
29.6
%
Amortization of intangibles
323

 
471

 
808

 
2,036

 
3,638

Stock-based compensation expense
347

 
331

 
401

 
327

 
1,406

Non-GAAP gross profit
$
76,799

 
$
76,898

 
$
76,589

 
$
82,474

 
$
312,760

Non-GAAP gross margin
28.0
%
 
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


Page 13


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 margin
2.0
%
 
3.8
%
 
4.9
%
 
5.8
%
 
4.1
%
Amortization of intangibles
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

Non-GAAP operating income
$
12,647

 
$
16,727

 
$
19,712

 
$
23,344

 
$
72,430

Non-GAAP operating margin
4.6
%
 
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 intangibles
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

Tax effects of above non-GAAP adjustments
45,814

 
(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


Page 14


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 intangibles
0.06

 
0.07

 
0.08

 
0.11

 
0.32

Stock-based compensation expense
0.15

 
0.15

 
0.15

 
0.13

 
0.57

Restructuring and other charges
0.00

 
0.00

 
0.00

 
0.00

 
0.00

Litigation reserves, net
0.00

 
0.00

 
0.00

 
—

 
0.00

Tax effects of above non-GAAP adjustments
1.42

 
(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 share
31,379

 
32,393

 
33,116

 
34,136

 
32,097

Shares used in computing non-GAAP net income per diluted share
32,270

 
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.




















Page 15


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

 
 
 
 
 
 
 
 
Headcount
901

 
884

 
861

 
856

Non-GAAP diluted shares
32,270

 
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
%
EMEA
59,207

22
%
 
46,491

18
%
 
45,800

18
%
 
45,576

17
%
 
197,074

19
%
APAC
38,062

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
%


Page 16


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

SMB
70,601

 
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 margin
8.4
%
 
11.8
%
 
10.7
%
 
13.0
%
 
10.9
%
SMB
$
15,975

 
$
13,778

 
$
17,435

 
$
16,677

 
$
63,865

SMB contribution margin
22.6
%
 
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 income
725

 
502

 
482

 
405

 
2,114

Other income (expense), net
440

 
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

SMB
776

 
1,114

 
588

 
790

 
3,268

Total service provider net revenue
$
44,653

 
$
45,745

 
$
49,073

 
$
53,983

 
$
193,454




Page 17


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 margin
33.6
%
 
31.6
%
 
31.9
%
 
33.7
%
 
32.7
%
Amortization of intangibles
2,084

 
2,084

 
2,084

 
2,084

 
8,336

Stock-based compensation expense
316

 
364

 
403

 
390

 
1,473

Non-GAAP gross profit
$
100,798

 
$
94,597

 
$
89,384

 
$
98,932

 
$
383,711

Non-GAAP gross margin
34.4
%
 
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


Page 18


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 margin
10.2
%
 
9.2
%
 
7.8
%
 
9.6
%
 
9.2
%
Amortization of intangibles
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

Non-GAAP operating income
$
38,024

 
$
34,959

 
$
30,923

 
$
38,007

 
$
141,913

Non-GAAP operating margin
13.0
%
 
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 intangibles
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

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


Page 19


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 intangibles
0.11

 
0.11

 
0.11

 
0.12

 
0.46

Stock-based compensation expense
0.12

 
0.13

 
0.14

 
0.12

 
0.51

Restructuring and other charges
0.00

 
0.00

 
0.04

 
0.08

 
0.11

Litigation reserves, net
0.00

 
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





Page 20




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

 
 
 
 
 
 
 
 
Headcount
877

 
881

 
866

 
877

Non-GAAP diluted shares
33,925

 
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
%
EMEA
60,298

21
%
 
51,909

18
%
 
45,806

17
%
 
59,541

21
%
 
217,554

19
%
APAC
42,584

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
%


Page 21


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

SMB
77,544

 
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 margin
17.0
%
 
15.7
%
 
14.7
%
 
18.1
%
 
16.4
%
SMB
$
19,770

 
$
18,444

 
$
18,598

 
$
15,727

 
$
72,539

SMB contribution margin
25.5
%
 
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 income
360

 
291

 
280

 
233

 
1,164

Other income (expense), net
383

 
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

SMB
686

 
1,295

 
746

 
1,448

 
4,175

Total service provider net revenue
$
46,416

 
$
67,337

 
$
62,102

 
$
78,300

 
$
254,155





Page 22