EXHIBIT 99.1
NETGEAR REPORTS FIRST QUARTER 2004 RESULTS
- First quarter 2004 net revenue increased to $88.4 million; 31% year
over year growth
- First quarter 2004 pro forma net income increased to $4.6 million, as
compared to $2.0 million in the comparable prior year quarter, a 135%
increase
- First quarter 2004 pro forma diluted EPS of $0.14
- First quarter 2004 gross margin improved to 31.1% and pro forma
operating margin to 8.2%
- Company expects second quarter 2004 net revenue to be in the range of
$86 million to $89 million, with pro forma operating margin in the
range of 8.1% to 8.5%
SANTA CLARA, Calif. - May 5, 2004 - NETGEAR, Inc. (NASDAQ: NTGR), a worldwide
provider of technologically advanced, branded networking products, today
reported financial results for the first quarter ended March 28, 2004.
Net revenue for the first quarter ended March 28, 2004 increased 31% to $88.4
million, as compared to $67.7 million for the first quarter ended March 30,
2003, and increased by 2% over the $86.8 million in net revenue for the prior
quarter ended December 31, 2003. Net revenue in the first quarter of 2004
derived from North America was $48.3 million, the Europe, Middle East and Africa
region was $31.7 million and the Asia Pacific region was $8.4 million.
Demand in the first quarter for NETGEAR's wireless, broadband and Ethernet
switching products worldwide remained strong, as the Company introduced 12 new
products during the quarter. Shipments of wireless nodes grew 5% in the first
quarter of 2004 to approximately 1.1 million units over the seasonally strong
fourth quarter of 2003. Shipments of wired and wireless broadband
routers/gateways grew 4% sequentially to approximately 700,000 units in the
first quarter of 2004. Sales of Ethernet switches continued to be strong, also
growing approximately 3% in units sequentially. Shipments of the Company's
popular Smart Switches grew approximately 80% sequentially in both units and
dollars. Gigabit Switches continued to grow robustly at about 7% sequentially in
dollars. Average selling price (ASP) remained essentially flat in the first
quarter of 2004 over the fourth quarter of last year.
Importantly, the Company improved its gross margin in the first quarter of 2004
to 31.1%, as compared to 27.3% in the year ago comparable quarter and 29.1% in
the prior quarter. Pro forma operating margin was 8.2% in the first quarter of
2004, compared to 5.3% in the year ago comparable quarter and 7.2% in the prior
quarter. Pro forma operating expenses were 22.9% of net revenue, and sales and
marketing expenses were 16.7% of net revenue in the first quarter of 2004. The
increase in sales and marketing expenses as a percentage of revenue, compared to
the fourth quarter of 2003, was due in part to continued weakness in the U.S.
dollar in relation to the Euro and British pound. Research and development
expenses remained essentially flat from the prior quarter at approximately 2.6%
of net revenue for the first quarter of 2004. General and administration costs
were 3.6% of net revenue for the first quarter of 2004.
Net income, computed in accordance with U.S. Generally Accepted Accounting
Principles, or GAAP, for the first quarter of 2004 was $4.2 million, as compared
to net income of $1.6 million for the first quarter of 2003. The Company had net
income of $0.14 per basic share and $0.13 per diluted share for the first
quarter of 2004, as compared to net income of $0.08 per basic share and $0.07
per diluted share in the first quarter of 2003. 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 first quarter of 2004 was $4.6 million, a 135% increase
over the pro forma net income of $2.0 million for the first quarter of 2003. Pro
forma net income per share was $0.16 per basic share and $0.14 per diluted share
in the first quarter of 2004, compared to $0.10 per basic share and $0.08 per
diluted share in the first quarter of 2003. The accompanying statements of
operations 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, "We are
very pleased with our results in the first quarter. We again achieved higher
revenue growth of over 30% year over year. Industry seasonality trends were
positively offset through market share gains, led by increased unit shipments of
our broadband gateway and our popular Smart Switches, complemented by strong
wireless demand. Our Super G line continues to build momentum because it
empowers users with an even wider range in wireless freedom and increased data
transmission speeds, which we believe are critical differentiators for NETGEAR
with end users. Towards the end of the first quarter, we introduced another
Super G product, the Super G Media Router, which enables home users to easily
plug in an external USB disc drive to share multimedia files both at home and
remotely over the Internet. We expect to see sales of our Super G line further
ramp throughout 2004."
"We also remained active in research and development introducing another 12 new
products in the first quarter. The wireless Digital Music Player MP101
introduced in February was well received in the U.S. and Europe. This product
enables any home stereo to be Wi-Fi connected and thus play MP3 or Windows Media
digital music files stored on any networked PCs in a home. We also introduced
two more models of Smart Switches towards the end of the first quarter, and we
believe we can continue the momentum in this exciting product category in the
quarters ahead. As a result of our continued focus on research and development,
revenue from new products introduced over the last 12 months increased to 60% of
total revenue in the first quarter of 2004, compared to 55% in the fourth
quarter of 2003 and 44% in the third quarter of 2003. We are also very excited
about our strong new product pipeline for the second quarter of 2004. During the
second quarter, we plan to introduce several promising new Gigabit switches,
802.11g wireless and Super G wireless products."
Jonathan Mather, Chief Financial Officer of NETGEAR, said, "Operationally, this
was another impressive quarter for us. Our focus on further leveraging NETGEAR's
scale and efficiency led to additional improvements in gross margin and
profitability. We achieved one of our primary quarterly operating objectives,
with gross margin exceeding 30% by reaching 31.1% in the first quarter, up from
29.1% in the fourth quarter. We also exceeded prior guidance for pro forma
operating margin of 7.1% to 7.5%, with pro forma operating margin reaching 8.2%
in the first quarter of 2004, up from 5.3% in the year ago first quarter and
from 7.2% in the fourth quarter of 2003. First quarter net revenue included a
net benefit of $1.4 million due to a $1.9 million reduction in requirements for
warranty obligations, partially offset by a $0.5 million increase in provisions
for expected end user rebates. The net benefit to revenue of $1.4 million had
minimal impact on gross profit, because the gross profit from the net revenue
increase was offset by an increase in estimated costs to repair or liquidate
inventory relating to warranty returns."
First quarter 2004 ending inventory was $39.2 million, representing 6.2 turns,
compared to $39.3 million and 6.3 turns at the end of the fourth quarter of
2003. Days sales outstanding (DSO's) declined to 71 days in the first quarter of
2004, compared to 81 days in the fourth quarter of 2003. NETGEAR's cash on hand,
including short-term investments, increased from $73.6 million at the end of the
fourth quarter of 2003 to $89.5 million at the end of the first quarter of 2004,
primarily due to cash generated from operating activities of $ 9.6 million.
European distribution channel inventory ended at about 4 weeks. The U.S. retail
channel inventory declined further to about 7.2 weeks, below the Company's
target of 8 weeks. U.S. distribution channel inventory increased to about 6.2
weeks, above the Company's target of 4 weeks.
Looking forward, Mr. Lo added, "NETGEAR continues to outpace the industry due to
our aggressive R&D roadmap, our continued success at launching and
commercializing innovative products and the strength of our brand and channel
worldwide. Based on sell-through reports from our U.S. and European channel
partners, our product sell-through in dollars grew in both markets from the
robust fourth quarter of 2003 to the first quarter of 2004, bucking the normal
seasonality weakness seen in the first quarter. As a result, we believe we
gained market share in both markets. Looking ahead, we believe our new product
momentum will continue. We expect to reach full channel inventory levels of our
MP101 Wireless Digital Music Player, the industry's first affordable easy to use
wireless network adapter for home stereos in the second quarter. We already have
had encouraging initial sell-through at each of the major accounts we shipped to
in the first quarter. Demand also remains strong for our Super G 108Mbps
wireless products and the DSL 2 broadband gateways. Overall, we are optimistic
in our outlook for the second quarter of 2004 and we expect continued strength
worldwide. Specifically, we expect second quarter 2004 net revenue to be in the
range of $86 million to $89 million, with pro forma operating income in the
range of 8.1% to 8.5% and a pro forma effective tax rate of 37.0%."
INVESTOR CONFERENCE CALL / WEBCAST DETAILS
NETGEAR will review first quarter 2004 results and discuss management's
expectations for the second quarter 2004 today, May 5, 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 May 5 through midnight EDT (9:00PM PDT) on May 12 by telephone at (973)
341-3080. The confirmation identification for both the live call and the replay
is 4709602.
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, including our
Super G line and smart switches and product pipeline. 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
-------------------------
MARCH 28, MARCH 30,
2004 2003
---------- ----------
Net revenue $ 88,425 $ 67,706
---------- ----------
Cost of revenue:
Cost of revenue 60,899 49,246
Amortization of (benefit from) deferred stock-based compensation 42 (11)
---------- ----------
Total cost of revenue 60,941 49,235
---------- ----------
Gross profit 27,484 18,471
---------- ----------
Operating expenses:
Research and development 2,343 2,016
Sales and marketing 14,768 10,961
General and administrative 3,182 1,902
Amortization of deferred stock-based compensation:
Research and development 118 96
Sales and marketing 188 109
General and administrative 97 151
---------- ----------
Total operating expenses 20,696 15,235
---------- ----------
Income from operations 6,788 3,236
Interest income 223 28
Interest expense -- (361)
Other expense, net (103) (78)
---------- ----------
Income before income taxes 6,908 2,825
Provision for income taxes 2,758 1,213
---------- ----------
Net income $ 4,150 $ 1,612
========== ==========
Net income per share
Basic $ 0.14 $ 0.08
========== ==========
Diluted $ 0.13 $ 0.07
========== ==========
Weighted average shares outstanding
for net income per share
Basic 29,521 20,231
========== ==========
Diluted 32,355 23,950
========== ==========
NETGEAR, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
EXCLUDING STOCK-BASED COMPENSATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
-------------------------
MARCH 28, MARCH 30,
2004 2003
---------- ----------
Net revenue $ 88,425 $ 67,706
---------- ----------
Cost of revenue 60,899 49,246
---------- ----------
Gross profit 27,526 18,460
---------- ----------
Operating expenses:
Research and development 2,343 2,016
Sales and marketing 14,768 10,961
General and administrative 3,182 1,902
Total operating expenses 20,293 14,879
---------- ----------
Income from operations 7,233 3,581
Interest income 223 28
Interest expense -- (361)
Other expense, net (103) (78)
---------- ----------
Income before income taxes 7,353 3,170
Provision for income taxes 2,758 1,213
---------- ----------
Net income $ 4,595 $ 1,957
========== ==========
Net income per share
Basic $ 0.16 $ 0.10
========== ==========
Diluted $ 0.14 $ 0.08
========== ==========
Weighted average shares outstanding for net income
per share
Basic 29,521 20,231
========== ==========
Diluted 32,355 23,950
========== ==========
NETGEAR, INC.
GAAP TO PRO FORMA RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
----------------------------------------
MARCH 28, 2004
----------------------------------------
GAAP EXCLUDED PRO FORMA
---------- ---------- ----------
Net revenue $ 88,425 $ -- $ 88,425
---------- ---------- ----------
Cost of revenue:
Cost of revenue 60,899 -- 60,899
Amortization of deferred stock-based compensation 42 42 --
---------- ---------- ----------
Total Cost of revenue 60,941 42 60,899
---------- ---------- ----------
Gross profit 27,484 (42) 27,526
---------- ---------- ----------
Operating expenses:
Research and development 2,343 -- 2,343
Sales and marketing 14,768 -- 14,768
General and administrative 3,182 -- 3,182
Amortization of deferred stock-based compensation:
Research and development 118 118 --
Sales and marketing 188 188 --
General and administrative 97 97 --
---------- ---------- ----------
Total operating expenses 20,696 403 20,293
---------- ---------- ----------
Income from operations 6,788 (445) 7,233
Interest income 223 -- 223
Interest expense -- -- --
Other expense, net (103) -- (103)
---------- ---------- ----------
Income before income taxes 6,908 (445) 7,353
Provision for income taxes 2,758 -- 2,758
---------- ---------- ----------
Net income $ 4,150 $ (445) $ 4,595
========== ========== ==========
Net income per share
Basic $ 0.14 $ 0.16
========== ==========
Diluted $ 0.13 $ 0.14
========== ==========
Weighted average shares outstanding
for net income per share
Basic 29,521 29,521
========== ==========
Diluted 32,355 32,355
========== ==========
NETGEAR, INC.
GAAP TO PRO FORMA RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 30, 2003
----------------------------------------
GAAP EXCLUDED PRO FORMA
---------- ---------- ----------
Net revenue $ 67,706 $ -- $ 67,706
---------- ---------- ----------
Cost of revenue:
Cost of revenue 49,246 -- 49,246
Benefit from deferred stock-based compensation (11) (11) --
---------- ---------- ----------
Total Cost of revenue 49,235 (11) 49,246
---------- ---------- ----------
Gross profit 18,471 11 18,460
---------- ---------- ----------
Operating expenses:
Research and development 2,016 -- 2,016
Sales and marketing 10,961 -- 10,961
General and administrative 1,902 -- 1,902
Amortization of deferred stock-based compensation:
Research and development 96 96 --
Sales and marketing 109 109 --
General and administrative 151 151 --
---------- ---------- ----------
Total operating expenses 15,235 356 14,879
---------- ---------- ----------
Income from operations 3,236 (345) 3,581
Interest income 28 -- 28
Interest expense (361) -- (361)
Other expense, net (78) -- (78)
---------- ---------- ----------
Income before income taxes 2,825 (345) 3,170
Provision for income taxes 1,213 -- 1,213
---------- ---------- ----------
Net income $ 1,612 $ (345) $ 1,957
========== ========== ==========
Net income per share
Basic $ 0.08 $ 0.10
========== ==========
Diluted $ 0.07 $ 0.08
========== ==========
Weighted average shares outstanding for net income
per share
Basic 20,231 20,231
========== ==========
Diluted 23,950 23,950
========== ==========
NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
MARCH 28, DECEMBER 31,
2004 2003
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 77,121 $ 61,215
Short-term investments 12,338 12,390
Accounts receivable, net 71,355 74,866
Receivable from related parties 875 --
Inventories 39,149 39,266
Deferred income taxes 9,056 9,056
Prepaid expenses and other current assets 5,205 4,169
---------- ----------
Total current assets 215,099 200,962
Property and equipment, net 3,480 3,626
Goodwill, net 558 558
---------- ----------
Total assets $ 219,137 $ 205,146
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,790 $ 24,480
Payable to related parties 6,251 6,412
Accrued employee compensation 5,968 3,871
Other accrued liabilities 38,488 31,299
Deferred revenue 1,539 2,380
Income taxes payable 1,039 1,765
---------- ----------
Total current liabilities 70,075 70,207
---------- ----------
Stockholders' equity (deficit):
Common stock 30 28
Additional paid-in capital 173,790 164,459
Deferred stock-based compensation (3,610) (4,248)
Other comprehensive income 15 13
Accumulated deficit (21,163) (25,313)
---------- ----------
Total stockholders' equity 149,062 134,939
---------- ----------
Total liabilities and stockholders' equity $ 219,137 $ 205,146
========== ==========