Press Release
• First quarter 2007 net revenue increased to $173.6 million, 36% year-over-year growth• First quarter 2007 non-GAAP net income increased to $15.6 million, as compared to $10.5 million in the comparable prior year quarter, 49% year-over- year-growth
• First quarter 2007 non-GAAP diluted earnings per share of $0.44, as compared to $0.31 in the prior year quarter, 42% year-over-year growth
• Company expects second quarter 2007 net revenue to be in the range of $165 million to $170 million, with non-GAAP operating margin in the range of 11% to 12%
Bracknell, UK - April 27, 2007 - NETGEAR, Inc. (NASDAQGM: NTGR), a worldwide provider of technologically advanced, branded networking products, today reported financial results for the first quarter ended April 1, 2007.
Net revenue for the first quarter ended April 1, 2007 was $173.6 million, a 36% increase as compared to $127.3 million for the first quarter ended April 2, 2006, and an increase of 6% as compared to $164.0 million in the fourth quarter of 2006. Net income, computed in accordance with GAAP, for the first quarter of 2007 was $14.0 million, or $0.40 per diluted share. This net income was an increase of 41% compared to net income of $9.9 million for the first quarter of 2006 and an increase of 4% compared to net income of $13.4 million in the fourth quarter of 2006. Diluted earnings per share, computed in accordance with GAAP, was $0.29 for the first quarter of 2006 and $0.38 for the fourth quarter of 2006.
Gross margin on a non-GAAP basis in the first quarter of 2007 was 34.7%, as compared to 35.1% in the year ago comparable quarter, and 32.5% in the fourth quarter of 2006. Non-GAAP operating margin was 12.3% in the first quarter of 2007, as compared to 12.4% in the first quarter of 2006, and 11.6% in the fourth quarter of 2006. In the first quarter of 2007, non-GAAP operating expenses were 22.4% of net revenue, as compared to 22.7% in the year ago comparable quarter, and 20.9% in the prior quarter.
Net income on a non-GAAP basis for the first quarter of 2007 was $15.6 million, a 49% increase compared to non-GAAP net income of $10.5 million for the first quarter of 2006, and a 5% increase compared to non-GAAP net income of $14.9 million for the fourth quarter of 2006. Non-GAAP net income for the first quarter of 2007 excludes $254,000 of adjustments related to amortization of purchased intangibles and retention bonuses, net of taxes, related to the SkipJam acquisition, which closed on August 1, 2006. Retention bonuses of $1.4 million are not included in the purchase price allocation, but are period costs that will be charged to the statement of operations as incurred over a two-year period from the date of the acquisition. As these costs are not part of normal operations of NETGEAR, they are excluded from the non-GAAP statement of operations. Non-GAAP net income for the first quarter of 2007 also excludes non- cash, stock-based compensation, net of tax, of $1.3 million. Non-GAAP net income for the first quarter of 2006 excludes non-cash, stock-based compensation, net of tax, of $672,000. Non-GAAP net income for the fourth quarter of 2006 excludes $278,000 of adjustments related to amortization of purchased intangibles and retention bonuses, net of taxes, related to the SkipJam acquisition. Non-GAAP net income for the fourth quarter of 2006 also excludes non-cash, stock-based compensation, net of tax, of $1.2 million. Non-GAAP net income was $0.44 per diluted share in the first quarter of 2007, compared to $0.31 per diluted share in the first quarter of 2006 and $0.43 per diluted share in the fourth quarter of 2006. The accompanying schedules provide a reconciliation of net income computed on a GAAP basis to net income computed on a non-GAAP basis.
Patrick Lo, Chairman and Chief Executive Officer of NETGEAR, commented, "Revenue in the first quarter came in above guidance due to continued momentum across all channels. Product wise, there was good uptake on our RangeMax NEXT draft 11n products and ProSafe® Smart Switches. The market acceptance of our industry leading stackable Gigabit Smart Switches introduced in the prior fourth quarter is very encouraging. Among the 12 new products introduced in the first quarter of 2007, notable launches included the Digital Entertainer HD, the ProSafe Gigabit Power over Ethernet Smart Switches, and the channel bonding 100Mbps cable modems, which enabled us to penetrate the Japanese and Korean cable operator markets. We made initial shipments of these modems to Akita Cable in Japan and Qrix Cable in Korea. Revenue from service providers accounted for approximately 21% of total revenue in the first quarter of 2007 as compared to 28% of total revenue in the fourth quarter of 2006, and 9% in the first quarter of 2006."
Christine Gorjanc, Chief Accounting Officer of NETGEAR, said, "We ended the first quarter 2007 with inventory at $68.4 million, compared to $77.9 million at the end of the fourth quarter 2006, and $44.9 million at the end of first quarter 2006. Ending inventory turns were 6.6, compared to 5.7 at the end of the fourth quarter 2006, and 7.4 at the end of the first quarter 2006. Days sales outstanding (DSO) were 65 in the first quarter of 2007 compared to 66 days in the fourth quarter of 2006 and 77 days in the first quarter of 2006. Cash and short-term investments increased to $216.2 million at the end of the first quarter of 2007 compared to $197.5 million at the end of the fourth quarter of 2006, and $178.0 million at the end of the first quarter of 2006. Deferred revenue decreased to $5.8 million at the end of the first quarter of 2007 as compared to $8.2 million at the end of the prior quarter and decreased from $7.7 million at the end of the first quarter of 2006."
The U.S. retail channel inventory ended the first quarter of 2007 at 10.4 weeks compared to 9.3 weeks in the first quarter of 2006 and 8.4 weeks in the fourth quarter of 2006. U.S. distribution channel inventory ended the first quarter of 2007 at 4.4 weeks, as compared to 5.0 weeks in the first quarter of 2006, and 3.5 weeks in the fourth quarter of 2006. European distribution channel inventory ended the first quarter of 2007 at approximately 5.0 weeks, as compared to approximately 5.2 weeks in the first quarter of 2006 and 5.1 weeks in the fourth quarter of 2006. Asia Pacific distribution channel inventory ended the first quarter of 2007 at approximately 5.1 weeks, as compared to approximately 4.1 weeks in the first quarter of 2006, and 4.2 weeks in the fourth quarter of 2006.
Net revenue by geography comprises gross revenue less such items as marketing incentives paid to customers, sales returns and price protection. The following table shows net revenue by geography for the periods indicated:
Net revenue by geography:
Three months ended April 1, 2007 April 2, 2006 December 31, 2006
North America $66,059 38% $56,382 44% $51,414 31%
Europe, Middle-East and Africa 92,552 53% 56,788 45% 99,963 61%
Asia Pacific 14,961 9% 14,089 11% 12,625 8%
$173,572 100% $127,259 100% $164,002 100%
Looking forward, Mr. Lo added, "We entered 2007 with a strong new product lineup: RangeMax NEXT draft 11n wireless, Powerline 85 and HD, Gigabit Stackable and PoE Smart Switches, SSL appliances, Skype phones, Digital Entertainers, Storage Central Turbo and 100Mbps cable modems. We continue to benefit from robust demand and our strong brand pull in our core home and SMB markets led by the combination of continued broadband penetration along with our established alliances with content and service providers. As people continue to invest in creating, sharing and securely saving digital content, we believe we will remain a primary beneficiary. We are confident about our prospects for the coming quarters and year. We expect the seasonally weaker second quarter net revenue to be approximately $165 million to $170 million, with non-GAAP operating margin in the range of 11% to 12%. Finally, we expect the non-GAAP effective tax rate to be approximately 35.0%."
Investor Conference Call / Webcast Details NETGEAR will review the first quarter and 2007 results and discuss management's expectations for the second quarter of 2007 on Thursday, April 26, 2007 at 5 p.m. EST (2 p.m. PST). The dial-in number for the live audio call is (201) 689- 8560. A live webcast of the conference call will be available on NETGEAR's website at www.netgear.com. A replay of the call will be available 2 hours following the call through midnight EST (9 p.m. PST) on Thursday, May 3, 2007 by telephone at (201) 612-7415 and via the web at www.netgear.com. The account number to access the phone replay is 3055 and the conference ID number is 237335.
