EXHIBIT 99.1
NETGEAR REPORTS SECOND QUARTER 2004 RESULTS
o Second quarter 2004 net revenue increased to $88.4 million; 28.1% year
over year growth
o Second quarter 2004 pro forma net income increased to $5.3 million, as
compared to $2.2 in the comparable prior year quarter, 147% year over
year growth
o Second quarter 2004 pro forma diluted EPS of $0.17 as compared to
$0.09 in the comparable prior year quarter, an 89% year over year
growth.
o Second quarter 2004 gross margin improved to 32.1% and pro forma
operating margin to 8.9%
o Company expects third quarter 2004 net revenue to be in the range of
$98 million to $101 million, with pro forma operating margin in the
range of 9.0% to 9.3%
SANTA CLARA, Calif. - July 29, 2004 - NETGEAR, Inc. (NASDAQ: NTGR), a worldwide
provider of technologically advanced, branded networking products, today
reported financial results for the second quarter ended June 27, 2004.
Net revenue for the second quarter ended June 27, 2004 was $88.4 million, a
28.1% increase compared to $69.0 million for the second quarter ended June 29,
2003; net revenue was $88.4 million in first quarter ended March 28, 2004. Net
revenue in the second quarter of 2004 derived from North America was $46.5
million, the Europe, Middle East and Africa region was $32.6 million and the
Asia Pacific region was $9.3 million.
The Company improved its gross margin in the second quarter of 2004 to 32.1%, as
compared to 27.6% in the year ago comparable quarter and 31.1% in the prior
quarter. Pro forma operating margin was 8.9% in the second quarter of 2004,
compared to 5.4% in the year ago comparable quarter and 8.2% in the prior
quarter. In the second quarter of 2004, pro forma operating expenses were 23.2%
of net revenue, and sales and marketing expenses were 17.0% of net revenue.
Research and development expenses remained essentially flat from the prior
quarter at approximately 2.6% of net revenue for the second quarter of 2004.
General and administration costs were 3.6% of net revenue for the second quarter
of 2004.
Net income, computed in accordance with U.S. Generally Accepted Accounting
Principles, or GAAP, for the second quarter of 2004 was $4.9 million or $0.16
per basic share and $0.15 per diluted share, compared to net income of $11.5
million for the second quarter of 2003 or $0.57 per basic share and $0.48 per
diluted share. Included in net income for the prior year quarter was a $9.8
million reversal of a deferred tax valuation allowance. The year over year
comparison of earnings per share takes into account an increase of approximately
8 million common shares outstanding reflecting the Company's IPO, which was
completed in July 2003.
Pro forma net income, which excludes non-cash, stock-based compensation expense
of $445,000, for the second quarter of 2004 was $5.3 million, a 147.1% increase
over the pro forma net income of $2.2 million for the second quarter of 2003,
which excluded $422,000 for stock-based compensation expense and the $9.8
million reversal of deferred tax valuation allowance. Pro forma net income per
share was $0.18 per basic share and $0.17 per diluted share in the second
quarter of 2004, compared to $0.11 per basic share and $0.09 per diluted share
in the second quarter of 2003. The accompanying schedules provide a
reconciliation of net income computed on a GAAP basis to net income computed on
a non-GAAP, or pro forma, basis.
Patrick Lo, Chairman and Chief Executive Officer of NETGEAR, commented, "This
was another solid quarter for the business as demand for our wireless, broadband
and Ethernet switching products worldwide remained strong. Our strength in the
small business market helped offset a seasonally slower retail market. We expect
our overall business momentum will continue as we enter the third quarter, which
is typically more robust due to back-to-school demand in the retail market in
the U.S. We expect that NETGEAR will experience better than industry growth as
many of the products we introduced over the past two quarters continue to
accelerate their sales momentum. The Company will also be introducing an
impressive line-up of new products in the third quarter, which we expect will be
well received, further powering our growth and market share gains in all regions
in the quarters ahead."
Jonathan Mather, Chief Financial Officer of NETGEAR, said, "For the past four
quarters as a public company NETGEAR has consistently met or exceeded our key
financial metrics. In the second quarter of 2004, our gross margin again
expanded, coming in at 32.1%, ahead of the 31.1% we achieved in the first
quarter and well ahead of 27.6% in the year ago second quarter. We remain
focused on further enhancing our revenue composition from a product, channel and
geographic basis, and expect to benefit from additional improvements in gross
margin. NETGEAR's cash on hand, including short-term investments, increased to
$111.2 million at the end of the second quarter of 2004 from $89.5 million at
the end of the first quarter of 2004, primarily due to cash generated from
operating activities."
Second quarter 2004 ending inventory was $44.2 million, representing 5.4 turns,
compared to $39.1 million and 6.2 turns at the end of the first quarter of 2004.
The increase is due to planned seasonal inventory stocking in advance of the
back-to-school season in the U.S. Days sales outstanding (DSO's) improved to 69
days in the second quarter of 2004, compared to 71 days in the first quarter of
2004. European distribution channel inventory ended at approximately 4.4 weeks.
The U.S. retail channel inventory is at 9.2 weeks. U.S. distribution channel
inventory is at 4.3 weeks.
Looking forward, Mr. Lo added, "We remain very optimistic for our business
prospects as we continue to execute on the vast opportunities in our core small
business and home users markets. We are also excited about the initial successes
we have had globally in the service provider market, including the recent
addition of Strato, one of Germany's major Internet service providers, as a new
customer. The international market continues to be a strong source of growth for
NETGEAR. We believe that we continue to gain market share in Europe and our
progress in Asia is encouraging, as evidenced by our 11% quarter over quarter
growth there. We will be placing increased resources behind our efforts in our
carrier and international businesses over the next few years given the
significant opportunities. Overall, as we enter the seasonally stronger third
quarter 2004 we expect net revenue to be in the range of approximately $98
million to $101 million, with pro forma operating income in the range of 9.0% to
9.3%. We also note that the third quarter of 2004 will contain 14 weeks compared
to 13 weeks in the second quarter of 2004. Finally, we expect pro forma
effective tax rate to remain about 37.0%."
INVESTOR CONFERENCE CALL / WEBCAST DETAILS
NETGEAR will review second quarter 2004 results and discuss management's
expectations for the third quarter 2004 today, July 29, 2004, at 5:30PM EDT
(2:30PM PDT). The conference call-in will be available at www.netgear.com and by
telephone at (973) 582-2745. A replay will be available from 8:30PM EDT (5:30PM
PDT) on July 29 through midnight EDT (9:00PM PDT) on August 5 by telephone at
(973) 341-3080. The confirmation identification for both the live call and the
replay is 4960605.
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
Director, Corporate Marketing Executive 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 OTHERS, REGARDING
NETGEAR'S EXPECTED REVENUE, EARNINGS, OPERATING INCOME AND TAX RATE, DEMAND FOR
PRODUCTS, AND OUR PROSPECTS TO GAIN MARKET SHARE INTERNATIONALLY, ESPECIALLY IN
EUROPE AND ASIA. 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, THE PRICE/PERFORMANCE
REQUIREMENTS OF CUSTOMERS, THE ABILITY OF NETGEAR TO SELL PRODUCTS INCORPORATING
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)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
JUNE 27, JUNE 29, JUNE 27, JUNE 29,
2004 2003 2004 2003
--------- --------- --------- ---------
Net revenue $ 88,372 $ 69,003 $ 176,797 $ 136,709
--------- --------- --------- ---------
Cost of revenue:
Cost of revenue 59,975 49,889 120,874 99,135
Amortization of deferred stock-based compensation 40 42 82 31
--------- --------- --------- ---------
Total Cost of revenue 60,015 49,931 120,956 99,166
--------- --------- --------- ---------
Gross profit 28,357 19,072 55,841 37,543
--------- --------- --------- ---------
Operating expenses:
Research and development 2,277 1,882 4,620 3,898
Sales and marketing 15,048 11,706 29,816 22,667
General and administrative 3,213 1,779 6,395 3,681
Amortization of deferred stock-based compensation:
Research and development 119 103 237 199
Sales and marketing 189 179 377 288
General and administrative 97 98 194 249
--------- --------- --------- ---------
Total operating expenses 20,943 15,747 41,639 30,982
--------- --------- --------- ---------
Income from operations 7,414 3,325 14,202 6,561
Interest income 321 25 544 53
Interest expense -- (370) -- (731)
Other income 206 128 103 50
--------- --------- --------- ---------
Income before income taxes 7,941 3,108 14,849 5,933
Provision (benefit) for income taxes 3,066 (8,395) 5,824 (7,182)
--------- --------- --------- ---------
Net income $ 4,875 $ 11,503 $ 9,025 $ 13,115
========= ========= ========= =========
Net income per share:
Basic $ 0.16 $ 0.57 $ 0.30 $ 0.65
========= ========= ========= =========
Diluted $ 0.15 $ 0.48 $ 0.28 $ 0.55
========= ========= ========= =========
Weighted average shares outstanding
for net income per share:
Basic 30,367 20,230 29,951 20,230
========= ========= ========= =========
Diluted 32,238 23,945 32,348 23,997
========= ========= ========= =========
NETGEAR, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
EXCLUDING STOCK-BASED COMPENSATION AND A DEFERRED
TAX ASSET VALUATION ALLOWANCE REVERSAL
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
JUNE 27, JUNE 29, JUNE 27, JUNE 29,
2004 2003 2004 2003
--------- --------- --------- ---------
Net revenue $ 88,372 $ 69,003 $ 176,797 $ 136,709
--------- --------- --------- ---------
Cost of revenue:
Cost of revenue 59,975 49,889 120,874 99,135
Amortization of deferred stock-based compensation -- -- -- --
--------- --------- --------- ---------
Total Cost of revenue 59,975 49,889 120,874 99,135
--------- --------- --------- ---------
Gross profit 28,397 19,114 55,923 37,574
--------- --------- --------- ---------
Operating expenses:
Research and development 2,277 1,882 4,620 3,898
Sales and marketing 15,048 11,706 29,816 22,667
General and administrative 3,213 1,779 6,395 3,681
Amortization of deferred stock-based compensation:
Research and development -- -- -- --
Sales and marketing -- -- -- --
General and administrative -- -- -- --
--------- --------- --------- ---------
Total operating expenses 20,538 15,367 40,831 30,246
--------- --------- --------- ---------
Income from operations 7,859 3,747 15,092 7,328
Interest income 321 25 544 53
Interest expense -- (370) -- (731)
Other income 206 128 103 50
--------- --------- --------- ---------
Income before income taxes 8,386 3,530 15,739 6,700
Provision for (benefit from) income taxes 3,066 1,377 5,824 2,590
--------- --------- --------- ---------
Net income $ 5,320 $ 2,153 $ 9,915 $ 4,110
========= ========= ========= =========
Net income per share:
Basic $ 0.18 $ 0.11 $ 0.33 $ 0.20
========= ========= ========= =========
Diluted $ 0.17 $ 0.09 $ 0.31 $ 0.17
========= ========= ========= =========
Weighted average shares outstanding for net
income per share:
Basic 30,367 20,230 29,951 20,230
========= ========= ========= =========
Diluted 32,238 23,945 32,348 23,997
========= ========= ========= =========
NETGEAR, INC.
SCHEDULE OF GAAP TO PRO FORMA RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------- ----------------------------------
JUNE 27, 2004 JUNE 27, 2004
---------------------------------- ----------------------------------
GAAP EXCLUDED PRO FORMA GAAP EXCLUDED PRO FORMA
--------- --------- --------- --------- --------- ---------
Net revenue $ 88,372 $ -- $ 88,372 $ 176,797 $ -- $ 176,797
--------- --------- --------- --------- --------- ---------
Cost of revenue:
Cost of revenue 59,975 -- 59,975 120,874 -- 120,874
Amortization of deferred
stock-based compensation 40 40 -- 82 82 --
--------- --------- --------- --------- --------- ---------
Total Cost of revenue 60,015 40 59,975 120,956 82 120,874
--------- --------- --------- --------- --------- ---------
Gross profit 28,357 (40) 28,397 55,841 (82) 55,923
--------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development 2,277 -- 2,277 4,620 -- 4,620
Sales and marketing 15,048 -- 15,048 29,816 -- 29,816
General and administrative 3,213 -- 3,213 6,395 -- 6,395
Amortization of deferred stock-based
compensation:
Research and development 119 119 -- 237 237 --
Sales and marketing 189 189 -- 377 377 --
General and administrative 97 97 -- 194 194 --
--------- --------- --------- --------- --------- ---------
Total operating expenses 20,943 405 20,538 41,639 808 40,831
--------- --------- --------- --------- --------- ---------
Income from operations 7,414 (445) 7,859 14,202 (890) 15,092
Interest income 321 -- 321 544 -- 544
Interest expense -- -- -- -- -- --
Other income 206 -- 206 103 -- 103
--------- --------- --------- --------- --------- ---------
Income before income taxes 7,941 (445) 8,386 14,849 (890) 15,739
Provision for income taxes 3,066 -- 3,066 5,824 -- 5,824
--------- --------- --------- --------- --------- ---------
Net income $ 4,875 $ (445) $ 5,320 $ 9,025 $ (890) $ 9,915
========= ========= ========= ========= ========= =========
Net income per share
Basic $ 0.16 $ 0.18 $ 0.30 $ 0.33
========= ========= ========= =========
Diluted $ 0.15 $ 0.17 $ 0.28 $ 0.31
========= ========= ========= =========
Weighted average shares outstanding
for net income per share:
Basic 30,367 30,367 29,951 29,951
========= ========= ========= =========
Diluted 32,238 32,238 32,348 32,348
========= ========= ========= =========
NETGEAR, INC.
SCHEDULE OF GAAP TO PRO FORMA RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------------- -----------------------------------
JUNE 29, 2003 JUNE 29, 2003
----------------------------------- -----------------------------------
GAAP EXCLUDED PRO FORMA GAAP EXCLUDED PRO FORMA
--------- --------- --------- --------- --------- ---------
Net revenue $ 69,003 $ -- $ 69,003 $ 136,709 $ -- $ 136,709
--------- --------- --------- --------- --------- ---------
Cost of revenue:
Cost of revenue 49,889 -- 49,889 99,135 -- 99,135
Amortization of deferred stock-based
compensation 42 42 -- 31 31 --
--------- --------- --------- --------- --------- ---------
Total Cost of revenue 49,931 42 49,889 99,166 31 99,135
--------- --------- --------- --------- --------- ---------
Gross profit 19,072 (42) 19,114 37,543 (31) 37,574
--------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development 1,882 -- 1,882 3,898 -- 3,898
Sales and marketing 11,706 -- 11,706 22,667 -- 22,667
General and administrative 1,779 -- 1,779 3,681 -- 3,681
Amortization of deferred stock-based
compensation:
Research and development 103 103 -- 199 199 --
Sales and marketing 179 179 -- 288 288 --
General and administrative 98 98 -- 249 249 --
--------- --------- --------- --------- --------- ---------
Total operating expenses 15,747 380 15,367 30,982 736 30,246
--------- --------- --------- --------- --------- ---------
Income from operations 3,325 (422) 3,747 6,561 (767) 7,328
Interest income 25 -- 25 53 -- 53
Interest expense (370) -- (370) (731) -- (731)
Other income 128 -- 128 50 -- 50
--------- --------- --------- --------- --------- ---------
Income before income taxes 3,108 (422) 3,530 5,933 (767) 6,700
Provision (benefit) for income taxes (8,395) (9,772) 1,377 (7,182) (9,772) 2,590
--------- --------- --------- --------- --------- ---------
Net income $ 11,503 $ 9,350 $ 2,153 $ 13,115 $ 9,005 $ 4,110
========= ========= ========= ========= ========= =========
Net income per share
Basic $ 0.57 $ 0.11 $ 0.65 $ 0.20
========= ========= ========= =========
Diluted $ 0.48 $ 0.09 $ 0.55 $ 0.17
========= ========= ========= =========
Weighted average shares outstanding for
net income per share
Basic 20,230 20,230 20,230 20,230
========= ========= ========= =========
Diluted 23,945 23,945 23,997 23,997
========= ========= ========= =========
NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
JUNE 27, DECEMBER 31,
2004 2003
--------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 98,923 $ 61,215
Short-term investments 12,303 12,390
Accounts receivable, net 67,291 74,866
Receivable from related parties 160 --
Inventories 44,156 39,266
Deferred income taxes 9,056 9,056
Prepaid expenses and other current assets 3,871 4,169
--------- ---------
Total current assets 235,760 200,962
Property and equipment, net 3,338 3,626
Goodwill, net 558 558
--------- ---------
Total assets $ 239,656 $ 205,146
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,062 $ 24,480
Payable to related parties 8,492 6,412
Accrued employee compensation 6,489 3,871
Other accrued liabilities 41,156 31,299
Deferred revenue 3,420 2,380
Income taxes payable -- 1,765
--------- ---------
Total current liabilities 80,619 70,207
--------- ---------
Stockholders' equity:
Common stock 30 28
Additional paid-in capital 178,426 164,459
Deferred stock-based compensation (3,126) (4,248)
Other comprehensive income (5) 13
Accumulated deficit (16,288) (25,313)
--------- ---------
Total stockholders' equity 159,037 134,939
--------- ---------
Total liabilities and stockholders' equity $ 239,656 $ 205,146
========= =========