EXHIBIT 99.1
NETGEAR REPORTS STRONG THIRD QUARTER 2003 RESULTS
- 18% Revenue growth year over year to $75.8 million
- Pro forma net income increases to $2.4 million from $1.5 million pro
forma net income in prior year; up 62%
- Pro forma diluted EPS at $0.08
SANTA CLARA, Calif. - October 28, 2003 - NETGEAR, Inc. (Nasdaq: NTGR), a
worldwide provider of technologically advanced, branded networking products,
today reported financial results for the third quarter ended September 28, 2003.
Net revenue for the third quarter ended September 28, 2003 increased 18% or
$11.4 million to $75.8 million, compared to $64.4 million for the quarter ended
September 29, 2002. Revenue increased approximately 10% over the prior quarter
of 2003 due to a strong increase in demand for Ethernet switching, broadband and
wireless products. Reported net revenue in North America grew 8% to $46.2
million in the third quarter of 2003, compared to $42.8 million in the second
quarter of 2003. Sales in North America were buoyant due to strong
back-to-school seasonal promotions with the Company's resellers in the retail
and e-commerce channels. The Europe, Middle East and Africa (EMEA) region
achieved sequential net revenue growth of over 27% to $24.2 million in the third
quarter of 2003 compared to $19.0 million in the second quarter of 2003, which
the Company believes is due to significant market share gains. As expected,
revenue derived from other regions, including the Asia Pacific, declined 25%
sequentially to $5.4 million in the third quarter of 2003, compared to $7.2
million in that region's seasonally strong second quarter. Separately, the
Company grew worldwide sales derived from the carrier channel due to increased
shipments to Time Warner Cable in the U.S. and Telewest in the UK. In addition,
initial shipments to Comcast in the U.S. started during the second half of the
third quarter.
Net loss computed in accordance with United States Generally Accepted Accounting
Principles, or GAAP, for the third quarter ended September 28, 2003 was $4.0
million, as compared to net income of $2.3 million for the quarter ended
September 29, 2002. The Company had a net loss per basic and diluted share of
$0.15 for the third quarter of 2003, as compared to net income of $0.12 per
basic share and $0.10 per diluted share in the third quarter of 2002. Pro forma
net income, which excludes certain charges described below, for the third
quarter ended September 28, 2003 was $2.4 million, a 62% increase over the pro
forma net income of $1.5 million for the quarter ended September 29, 2002. Pro
forma net income per share was $0.09 per basic share and $0.08 per diluted share
in the third quarter of 2003, compared to $0.07 per basic and diluted share in
the third quarter of 2002. The pro forma net income for the third quarter of
2003 excludes the impact of an extinguishment of debt charge of $5.9 million and
non-cash stock-based compensation expense of $516,000. The third quarter of 2002
pro forma net income excludes the impact of a $1.1 million benefit from net
operating loss tax carry forwards (NOL's) utilized during the quarter and
non-cash stock-based compensation expense of $262,000. The accompanying
statements of operations provide a reconciliation of our net income (loss)
computed on a GAAP basis to our net income computed on a non-GAAP, or pro forma,
basis.
Unit shipments in all product categories, Ethernet switching, wireless, and
wired routers and gateways, grew sequentially from the second quarter 2003 to
the third quarter 2003. Ethernet switching products, primarily for small
businesses grew 16% sequentially in units, and wireless products, including
wireless cards, access points, routers, firewalls and home gateways, grew 25%
sequentially in units. Wireless shipments increased from 628,000 nodes in the
second quarter 2003 to nearly 800,000 nodes in the third quarter 2003. As
expected, unit shipment growth of wired routers and firewalls was up 7%
sequentially because of the ongoing accelerated adoption of more popular
wireless technologies.
Patrick Lo, Chairman and Chief Executive Officer of NETGEAR, commented, "This
was another strong quarter based on revenue and pro forma net income, new
product introductions and increased channel penetration. Growth in the U.S. was
driven by robust back-to-school seasonal demand, promotions and increased
network infrastructure spending, along with an accelerated consumer adoption of
wireless technologies. In Europe, our growth came from competitive market share
gains due to our attractive consumer and small-business product offerings and
strength of our distribution and retail networks. Finally, we expect to gain
momentum in the Asia Pacific region as we leverage our partner relationships to
penetrate these attractive, fast growing markets."
During the third quarter of 2003, NETGEAR introduced 12 new products. Among them
were two powerful new Ethernet switches for the small business market. One
switch enables businesses to manage their networks via simple screens on their
preferred web browser. The other product is a 12-port Gigabit Layer 3 switch,
which augments NETGEAR's 24 port offering introduced in the second quarter 2003.
NETGEAR also introduced four industry first home products: a 108Mbps wireless
802.11g router and card, a USB 2.0 54Mbps wireless 802.11g card, and a DSL II
modem gateway. The Company has already experienced strong demand for all four of
these products and believes these products will contribute significantly to its
future revenue growth.
Jonathan Mather, Chief Financial Officer of NETGEAR, said, "We continue to
achieve impressive growth in profitability, notwithstanding increased marketing
and tech support costs related to our higher revenue base and additional
expenses related to operating as a newly public company. Importantly, our gross
margin reached 27.8% in the third quarter from 27.6% in the second quarter and
from 25.1% in the year ago third quarter. Our balance sheet is strong with $75.7
million in cash and cash equivalents as of the end of the quarter, providing us
the resources to execute upon the growth opportunities in front of us. We
continue to manage our inventory closely, with quarter ending inventory at $33.4
million, representing 6.5 turns, compared to $40.2 million and 5 turns at the
end of the second quarter. Day's sales outstanding (DSO's) increased slightly
from 69 days in the second quarter to 71 days at the end of the third quarter
due to the non-linearity of shipments experienced during the quarter. Channel
inventory has been reduced in the third quarter from prior quarter, to 3.5 weeks
in the U.S. distribution channel and 7.8 weeks in the U.S. retail channel."
Total operating expenses were 23% of net revenue in the third quarter of 2003,
as compared to 21% of net revenue in the third quarter of 2002. Sales and
marketing expenses increased to 16.4% of net revenue in the third quarter of
2003, from 13.1% of net revenue for the third quarter of 2002. The increase in
sales and marketing expenses as a percentage of net revenue is due to additional
channel and promotion activities in the third quarter of 2003, including joint
print and TV advertising with retail stores. Research and development expenses
decreased to 2.7% of net revenue for the quarter ended September 28, 2003, as
compared to 3.7% of net revenue for the quarter ended September 29, 2002. While
the spending for research and development has decreased as a percentage of net
revenue, the Company continues to support new product developments, such as the
following: Layer 3 switches, Gigabit switches, secured wireless and firewalls,
108Mbps wireless and home entertainment device network adapters.
Looking forward, Mr. Lo added, "We are entering the seasonally strong fourth
quarter with high confidence in our outlook. Based on very positive initial
bookings from our channel partners, we believe our current momentum will
continue through the fourth quarter. Specifically, we expect revenues for the
quarter ending December 31, 2003 will be in the range of $79 million to $81
million and operating income in the range of 5.8% to 6.2%."
INVESTOR CONFERENCE CALL / WEBCAST DETAILS
NETGEAR will review third quarter 2003 results and discuss management's
expectations for the fourth quarter of 2003 and current views of the industry
today, October 28, 2003, at 5PM EST. The conference call-in will be available at
www.netgear.com and by telephone at (973) 582-2745. A replay will be available
from 8PM EST on October 28 through midnight EST on Tuesday, November 4 at
www.netgear.com and by telephone at (973) 341-3080. The confirmation
identification for both the live call and the replay is 4222124.
ABOUT NETGEAR INC.
NETGEAR (Nasdaq: NTGR) designs technologically advanced, branded networking
products that address the specific needs of small business and home users. The
Company's suite of approximately 100 products enables users to share Internet
access, peripherals, files, digital multimedia content and applications among
multiple personal computers and other Internet-enabled devices. NETGEAR is
headquartered in Santa Clara, Calif. For more information, visit the company's
Web site at www.netgear.com or call (408) 907-8000.
NETGEAR is a registered trademark of NETGEAR, Inc. in the United States and
other countries.
CONTACTS:
Doug Hagan David Pasquale
Senior Manager, Public Relations Senior Vice President, Investor Relations
NETGEAR, Inc. The Ruth Group
(408) 907-8053 (646) 536-7006
doug.hagan@netgear.com dpasquale@theruthgroup.com
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
FOR NETGEAR, INC.:
This release contains forward-looking statements. The forward-looking statements
represent NETGEAR, Inc.'s expectations or beliefs concerning future events and
include statements, among other, regarding NETGEAR's expected revenues and
earnings, anticipated momentum in the Asia Pacific region, and revenues expected
to result from sales of our new product offerings. These statements are subject
to risks and uncertainties. For example, our revenues could be less than
expected if demand for our products is less than anticipated, we are unable to
manufacture and distribute our products, or we are unable to collect receivables
as they become due. Our earnings depend upon our revenues, as well as our
ability to manage our costs, including the cost of developing new products and
manufacturing and distributing our existing offerings. Other factors that could
affect our forward-looking statements include without limitation, demand for our
products, including our new 802.11g offerings, the price/performance
requirements of customers, the ability of NETGEAR to sell products incorporating
the technology, the impact and pricing of competing technologies, the
introduction of alternative technological solutions and other risks detailed
from time-to-time in NETGEAR's SEC filings and reports. NETGEAR undertakes no
duty to update these forward-looking statements.
- TABLES ATTACHED -
NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
September 28, September 29, September 28, September 29,
2003 2002 2003 2002
------------- ------------- ------------- -------------
(UNAUDITED)
Net revenue $ 75,785 $ 64,362 $ 212,494 $ 165,428
---------- ---------- ---------- ----------
Cost of revenue:
Cost of revenue 54,691 48,188 153,826 124,199
Amortization of deferred stock-based compensation 46 22 77 108
---------- ---------- ---------- ----------
Total cost of revenue 54,737 48,210 153,903 124,307
---------- ---------- ---------- ----------
Gross profit 21,048 16,152 58,591 41,121
---------- ---------- ---------- ----------
Operating expenses:
Research and development 2,079 2,378 5,977 4,878
Sales and marketing 12,419 8,456 35,086 23,445
General and administrative 2,356 2,113 6,037 5,665
Amortization of deferred stock-based
compensation:
Research and development 135 51 334 231
Sales and marketing 227 59 515 247
General and administrative 108 130 357 497
---------- ---------- ---------- ----------
Total operating expenses 17,324 13,187 48,306 34,963
---------- ---------- ---------- ----------
Income from operations 3,724 2,965 10,285 6,158
Interest income 123 32 176 98
Interest expense (170) (339) (901) (883)
Extinguishment of debt (5,868) -- (5,868) --
Other income, net (95) 73 (44) 113
----------- ---------- ----------- ----------
Income before income taxes (2,286) 2,731 3,648 5,486
Provision (benefit) for income taxes 1,664 385 (5,517) 771
---------- ---------- ---------- ----------
Net income (loss) (3,950) 2,346 9,165 4,715
Deemed dividend on Preferred Stock -- -- -- (17,881)
---------- ---------- ---------- ----------
Net income (loss) attributable to common stockholders $ (3,950) $ 2,346 $ 9,165 $ (13,166)
=========== ========== ========== ==========
Net income (loss) per share attributable to common
stockholders
Basic $ (0.15) $ 0.12 $ 0.42 $ (0.61)
=========== ========== ========== ==========
Diluted $ (0.15) $ 0.10 $ 0.35 $ (0.61)
=========== ========== ========== ==========
Weighted average shares outstanding for net income
(loss) per share
Basic 25,684 20,234 21,957 21,504
============ ============ ============ ============
Diluted 25,684 22,519 25,851 21,504
============ ============ ============ ============
NETGEAR, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
EXCLUDING EXTINGUISHMENT OF DEBT CHARGE, DEFERRED TAX ASSET VALUATION
ALLOWANCE REVERSAL, DEEMED DIVIDEND ON PREFERRED STOCK, STOCK-BASED
COMPENSATION AND BENEFIT FROM UTILIZATION
OF NET OPERATING LOSS CARRY FORWARDS (NOL'S)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
September 28, September 29, September 28, September 29,
2003 2002 2003 2002
------------- ------------- ------------- -------------
(UNAUDITED)
Net revenue $ 75,785 $ 64,362 $ 212,494 $ 165,428
---------- ---------- ---------- ----------
Cost of revenue:
Cost of revenue 54,691 48,188 153,826 124,199
Amortization of deferred stock-based compensation -- -- -- --
---------- ---------- ---------- ----------
Total cost of revenue 54,691 48,188 153,826 124,199
---------- ---------- ---------- ----------
Gross profit 21,094 16,174 58,668 41,229
---------- ---------- ---------- ----------
Operating expenses:
Research and development 2,079 2,378 5,977 4,878
Sales and marketing 12,419 8,456 35,086 23,445
General and administrative 2,356 2,113 6,037 5,665
Amortization of deferred stock-based
compensation:
Research and development -- -- -- --
Sales and marketing -- -- -- --
General and administrative -- -- -- --
---------- ---------- ---------- ----------
Total operating expenses 16,854 12,947 47,100 33,988
---------- ---------- ---------- ----------
Income from operations 4,240 3,227 11,568 7,241
Interest income 123 32 176 98
Interest expense (170) (339) (901) (883)
Extinguishment of debt -- -- -- --
Other income, net (95) 73 (44) 113
----------- ---------- ----------- ----------
Income before income taxes 4,098 2,993 10,799 6,569
Provision (benefit) for income taxes 1,664 1,488 4,255 2,987
----------- ---------- ----------- ----------
Net income (loss) 2,434 1,505 6,544 3,582
Deemed dividend on Preferred Stock -- -- -- --
---------- ---------- ---------- ----------
Net income (loss) attributable to common stockholders $ 2,434 $ 1,505 $ 6,544 $ 3,582
========== ========== ========== ==========
Net income (loss) per share attributable to common
stockholders
Basic $ 0.09 $ 0.07 $ 0.30 $ 0.17
========== ========== ========== ==========
Diluted $ 0.08 $ 0.07 $ 0.25 $ 0.16
========== ========== ========== ==========
Weighted average shares outstanding for net income
(loss) per share
Basic 25,684 20,234 21,957 21,504
========== ========== ========== ==========
Diluted 29,869 22,519 25,851 22,712
========== ========== ========== ==========
NETGEAR, INC.
GAAP TO PRO FORMA RECONCILIATION
(In thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------- -----------------------------------
SEPTEMBER 28, 2003 SEPTEMBER 28, 2003
----------------------------------- -----------------------------------
GAAP EXCLUDED PRO FORMA GAAP EXCLUDED PRO FORMA
--------- --------- --------- --------- --------- ---------
Net revenue $ 75,785 $ -- $ 75,785 $ 212,494 $ -- $ 212,494
--------- --------- --------- --------- --------- ---------
Cost of revenue:
Cost of revenue 54,691 -- 54,691 153,826 -- 153,826
Amortization of deferred stock-based compensation 46 46 -- 77 77 --
--------- --------- --------- --------- --------- ---------
Total Cost of revenue 54,737 46 54,691 153,903 77 153,826
--------- --------- --------- --------- --------- ---------
Gross profit 21,048 (46) 21,094 58,591 (77) 58,668
--------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development 2,079 -- 2,079 5,977 -- 5,977
Sales and marketing 12,419 -- 12,419 35,086 -- 35,086
General and administrative 2,356 -- 2,356 6,037 -- 6,037
Amortization of deferred stock-based compensation:
Research and development 135 135 -- 334 334 --
Sales and marketing 227 227 -- 515 515 --
General and administrative 108 108 -- 357 357 --
--------- --------- --------- --------- --------- ---------
Total operating expenses 17,324 470 16,854 48,306 1,206 47,100
--------- --------- --------- --------- --------- ---------
Income (loss) from operations 3,724 (516) 4,240 10,285 (1,283) 11,568
Interest income 123 -- 123 176 -- 176
Interest expense (170) -- (170) (901) -- (901)
Extinguishment of debt (5,868) (5,868) -- (5,868) (5,868) --
Other income (expense), net (95) -- (95) (44) -- (44)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
(2,286) (6,384) 4,098 3,648 (7,151) 10,799
Provision (benefit) for income taxes 1,664 -- 1,664 (5,517) (9,772) 4,255
--------- --------- --------- --------- --------- ---------
Net income (3,950) (6,384) 2,434 9,165 2,621 6,544
Deemed dividend on Preferred Stock -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net income (loss) attributable to common stockholders $ (3,950) $ (6,384) $ 2,434 $ 9,165 $ 2,621 $ 6,544
========= ========= ========= ========= ========= =========
Net income (loss) per share attributable
to common stockholders
Basic $ (0.15) $ (0.25) $ 0.09 $ 0.42 $ 0.12 $ 0.30
========= ========= ========= ========= ========= =========
Diluted $ (0.15) $ (0.25) $ 0.08 $ 0.35 $ 0.10 $ 0.25
========= ========= ========= ========= ========= =========
Weighted average shares outstanding for net income
(loss) per share
Basic 25,684 25,684 21,957 21,957
========= ========= ========= =========
Diluted 25,684 29,869 25,851 25,851
========= ========= ========= =========
NETGEAR, INC.
GAAP TO PRO FORMA RECONCILIATION
(In thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------- -------------------------------------
SEPTEMBER 29, 2002 SEPTEMBER 29, 2002
----------------------------------- -----------------------------------
GAAP EXCLUDED PRO FORMA GAAP EXCLUDED PRO FORMA
--------- --------- --------- --------- --------- ---------
Net revenue $ 64,362 $ -- $ 64,362 $ 165,428 $ -- $ 165,428
--------- --------- --------- --------- --------- ---------
Cost of revenue:
Cost of revenue 48,188 -- 48,188 124,199 -- 124,199
Amortization of deferred stock-based compensation 22 22 -- 108 108 --
--------- --------- --------- --------- --------- ---------
Total Cost of revenue 48,210 22 48,188 124,307 108 124,199
--------- --------- --------- --------- --------- ---------
Gross profit 16,152 (22) 16,174 41,121 (108) 41,229
--------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development 2,378 -- 2,378 4,878 -- 4,878
Sales and marketing 8,456 -- 8,456 23,445 -- 23,445
General and administrative 2,113 -- 2,113 5,665 -- 5,665
Amortization of deferred stock-based compensation:
Research and development 51 51 -- 231 231 --
Sales and marketing 59 59 -- 247 247 --
General and administrative 130 130 -- 497 497 --
--------- --------- --------- --------- --------- ---------
Total operating expenses 13,187 240 12,947 34,963 975 33,988
--------- --------- --------- --------- --------- ---------
Income (loss) from operations 2,965 (262) 3,227 6,158 (1,083) 7,241
Interest income 32 -- 32 98 -- 98
Interest expense (339) -- (339) (883) -- (883)
Extinguishment of debt -- -- -- -- -- --
Other income (expense), net 73 -- 73 113 -- 113
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes 2,731 (262) 2,993 5,486 (1,083) 6,569
Provision (benefit) for income taxes 385 (1,103) 1,488 771 (2,216) 2,987
--------- --------- --------- --------- --------- ---------
Net income 2,346 841 1,505 4,715 1,133 3,582
Deemed dividend on Preferred Stock -- -- -- (17,881) (17,881) --
--------- --------- --------- --------- --------- ---------
Net income (loss) attributable to common stockholders $ 2,346 $ 841 $ 1,505 $ (13,166) $ (16,748) $ 3,582
========= ========= ========= ========= ========= =========
Net income (loss) per share attributable to common
stockholders
Basic $ 0.12 $ 0.04 $ 0.07 $ (0.61) $ (0.78) $ 0.17
========= ========= ========= ========= ========= =========
Diluted $ 0.10 $ 0.04 $ 0.07 $ (0.61) $ (0.78) $ 0.16
========= ========= ========= ========= ========= =========
Weighted average shares outstanding
for net income (loss) per share
Basic 20,234 20,234 21,504 21,504
========= ========= ========= =========
Diluted 22,519 22,519 21,504 22,712
========= ========= ========= =========
NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 28, December 31,
2003 2002
------------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 75,673 $ 19,880
Accounts receivable, net of
allowance for doubtful accounts of
$964 at September 28, 2003 and $873 at
December 31, 2002 58,790 42,492
Inventories 33,430 24,774
Deferred income taxes 9,772 --
Prepaid expenses and other current assets 5,598 3,003
----------- -----------
Total current assets 183,263 90,149
Property and equipment, net 3,302 3,144
Goodwill, net 558 558
----------- -----------
Total assets $ 187,123 $ 93,851
=========== ===========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 20,673 $ 10,628
Payable to related parties 4,658 13,687
Accrued employee compensation 2,955 3,375
Other accrued liabilities 26,014 29,419
Deferred revenue 2,216 5,059
Income taxes payable 837 934
Borrowings under line of credit -- --
Note payable to Nortel Networks -- 13,294
----------- -----------
Total current liabilities 57,353 76,396
----------- -----------
Redeemable convertible preferred stock $ -- $ 48,052
----------- -----------
Stockholders' equity (deficit)
Common stock 28 --
Additional paid-in capital 163,839 12,810
Deferred stock-based compensation (4,852) (4,997)
Accumulated deficit (29,245) (38,410)
----------- -----------
Total stockholders'
equity (deficit) 129,770 (30,597)
----------- -----------
Total liabilities,
redeemable convertible
preferred stock and stockholders'
equity (deficit) $ 187,123 $ 93,851
=========== ===========