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NETGEAR REPORTS SECOND QUARTER 2006 RESULTS

  • 28 July, 2006 11:30

<p>Second quarter 2006 net revenue increased to $130.7 million, 21.5 per cent year-over-year growth. Second quarter 2006 non-GAAP net income increased to $10.5 million, as compared to $8.3 million in the comparable prior year quarter, 26.5 per cent year-over-year growth.</p>
<p>Second quarter 2006 non-GAAP diluted EPS of $0.30, as compared to $0.25 in the prior year quarter, 20.0 per cent year-over-year growth.</p>
<p>Company expects third quarter 2006 net revenue to be in the range of $138 million to $143 million, with non-GAAP operating margin in the range of 11.0 per cent to 12.0 per cent.</p>
<p>SANTA CLARA, Calif. – July 28, 2006 – NETGEAR, Inc. (NASDAQ: NTGR), a worldwide provider of technologically advanced, branded networking products, today reported financial results for the second quarter ended July 2, 2006.</p>
<p>Net revenue for the second quarter ended July 2, 2006 was $130.7 million, a 21.5% increase as compared to $107.6 million for the second quarter ended July 3, 2005, and an increase of 2.7% as compared to $127.3 million in the first quarter of 2006. Net income, computed in accordance with GAAP, for the second quarter of 2006 was $9.8 million or $0.29 per diluted share. This net income was an 18.1% increase compared to net income of $8.3 million for the second quarter of 2005 or $0.25 per diluted share, and relatively flat compared to net income of $9.9 million or $0.29 per diluted share in the first quarter of 2006.</p>
<p>Non-GAAP gross margin in the second quarter of 2006 was 34.8%, as compared to 35.9% in the year ago comparable quarter, and 35.1% in the first quarter of 2006. Non-GAAP operating margin was 11.2% in the second quarter of 2006, as compared to 12.5% in the second quarter of 2005, and 12.4% in the first quarter of 2006. In the second quarter of 2006, non-GAAP operating expenses were 23.6% of net revenue, as compared to 23.4% in the year ago comparable quarter, and 22.7% in the prior quarter.</p>
<p>Non-GAAP net income for the second quarter of 2006 was $10.5 million, a 26.5% increase compared to non-GAAP net income of $8.3 million for the second quarter of 2005, and relatively flat compared to non-GAAP net income of $10.5 million for the first quarter of 2006. Non-GAAP net income for the second quarter of 2006 excludes non-cash, stock-based compensation, net of tax of $622,000. Non-GAAP net income for the second quarter of 2005 excludes non-cash, stock based compensation of $324,000, and also excludes a $325,000 net tax benefit from exercises of stock options. 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 was $0.30 per diluted share in the second quarter of 2006, compared to $0.25 per diluted share in the second quarter of 2005 and $0.31 per diluted share in the first 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.</p>
<p>Patrick Lo, Chairman and Chief Executive Officer of NETGEAR, commented, “This was another strong quarter for us. We benefited from increased demand across all three regions, maintaining the considerable business momentum we have established on a global basis. The strongest growth for us came from broadband gateways sold to service providers and our RangeMax™ line of wireless routers, including the newly introduced RangeMax NEXT draft 11n products. Our technology advantage, ease of use, and industrial design continues to be cited by major reviewers at many influential media outlets around the world in reviews of our RangeMax NEXT draft 11n products. We successfully introduced another 17 products, including 8 RangeMax NEXT draft 11n products. Key new service providers added in the second quarter include British Sky Broadcasting Limited and AOL in the UK. In line with this momentum, service provider revenue increased to 15% as a percentage of total revenue, compared to 9% in the first quarter of 2006.”</p>
<p>Jonathan Mather, Executive Vice President and Chief Financial Officer of NETGEAR, said, “We proactively took on higher inventory levels in order to put more product on lower cost sea freight to satisfy our third quarter requirements. Retail channel inventory in the U.S. was higher than normal due to anticipated demand for the Back to School season, especially for our new RangeMax NEXT line of products. We expect the U.S. retail channel inventory level to return to normal levels by the end of the third quarter. We ended the second quarter 2006 with inventory at $69.3 million with ending inventory turns of 4.9, compared to $44.9 million with ending inventory turns of 7.4 at the end of the first quarter 2006, and $44.1 million with ending inventory turns of 6.3 at the end of the second quarter 2005. Days sales outstanding (DSO) was 74 in the second quarter of 2006 compared to 77 days in the first quarter of 2006 and 66 days in the second quarter of 2005. Cash and short-term investments were $158.9 million at the end of the second quarter of 2006 compared to $178.0 million at the end of the first quarter of 2006, and $147.9 million at the end of the second quarter of 2005. Deferred revenue decreased to $6.9 million at the end of the second quarter of 2006 as compared to $7.7 million at the end of the prior quarter and increased from $2.7 million at the end of the second quarter of 2005.”</p>
<p>The U.S. retail channel inventory ended the second quarter of 2006 at 13.3 weeks compared to 10.1 weeks in the second quarter of 2005 and 9.3 weeks in the first quarter of 2006. U.S. distribution channel inventory ended the second quarter of 2006 at 4.7 weeks, as compared to 3.3 weeks in the second quarter of 2005, and 5.0 weeks in the first quarter of 2006. European distribution channel inventory ended the second quarter of 2006 at approximately 6.1 weeks, as compared to approximately 3.9 weeks in the second quarter of 2005 and 5.2 weeks in the first quarter of 2006. Asia Pacific distribution channel inventory ended the second quarter of 2006 at approximately 5.1 weeks, as compared to approximately 5.3 weeks in the second quarter of 2005, and 4.1 weeks in the first quarter of 2006.</p>
<p>Net revenue by geography comprises gross revenue less such items as marketing incentives paid to customers, sales returns and price protection, which reduce gross revenue. In the fourth quarter of 2005, we refined our methodology for allocating marketing incentives that reduce gross revenue and now allocate them on a specific identification basis to the geography to which they relate. Previously marketing incentives were allocated based on each geography’s gross revenue as a percentage of total gross revenue. For the first and second quarters of 2006, net revenue by geography was reported by using this refined methodology and historical periods were updated to be comparable and consistent with the revised methodology.</p>
<p>Looking forward, Mr. Lo added, “We are very optimistic entering the second half of the year. Our product line-up and channel of distribution are at their strongest in the company’s ten year history. We continue to bring significant advances in wireless and broadband applications to small-office and home users globally. There is a high level of energy across NETGEAR riding the momentum of the new products introduced and new account relationships established in the second quarter. On top of the exciting 17 new products introduced in the second quarter, we expect to introduce at least 12 additional new products in the third quarter. We also recently started to supply our Smart Switches to Korean Telecom for their wireless broadband implementation. Specifically, we expect net revenue for the third quarter 2006 will be approximately $138 million to $143 million, with non-GAAP operating margin in the range of 11.0% to 12.0%. Finally, we expect the non-GAAP effective tax rate to be approximately 39.5%.”</p>
<p>Investor Conference Call / Webcast Details</p>
<p>NETGEAR will review the second quarter 2006 results and discuss management’s expectations for the third quarter of 2006, Thursday, July 27, 2006 at 5:00 p.m. EST (2:00 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 11:59 p.m. EST (8:59 p.m. PST) on Thursday, August 3, 2006 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 206304.</p>
<p>NETGEAR (Nasdaq: NTGR) designs technologically advanced, branded networking products that address the specific needs of businesses and home users. Headquartered in Santa Clara, California, NETGEAR’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.</p>
<p>For more information, visit the company's website at</p>
<p>www.netgear.com.au or call 02 8448 2072.</p>
<p>NETGEAR and the NETGEAR logo are registered trademarks of NETGEAR, Inc. in the United States and other countries. Other brand and product names are trademarks of their respective holders. Information is subject to change without notice. All rights reserved</p>
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<p>Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 for NETGEAR, Inc.:
This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, the expected performance characteristics, specifications, market acceptance, market growth, specific uses and market position of NETGEAR, Inc. and its products and technology are forward-looking statements. Other forward-looking statements generally can be identified by the use of forward-looking terminology such
as, “believe”, “expect”, “may”, “will”, “intend”, “estimate”, “continue”, or similar expressions. Such statements involve risks and uncertainties, which could cause actual results to vary materially from those expressed in or indicated by the forward-looking statements. Factors that may cause actual results to differ materially include, without limitation, the price and performance requirements of our customers, demand for our products, potential delays in development or certification of our products and other risks detailed in our periodic reports and other documents filed with the Securities and Exchange Commission. We caution you not to place undue reliance on forward-looking statements, which reflect an analysis only and speak only as of the date hereof. NETGEAR does not assume any obligation to update these forward-looking statements.</p>

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