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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 27, 2020.

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                    to

 

Commission file number: 000-50350

NETGEAR, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

77-0419172

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

 

 

 

350 East Plumeria Drive,

 

 

San Jose,

California

 

95134

(Address of principal executive offices)

 

(Zip Code)

 

 

(408)

907-8000

 

(Registrant’s telephone number including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading symbol(s):

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

NTGR

 

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large Accelerated filer

 

 

Accelerated filer

 

Non-Accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 30,282,095 as of October 23, 2020.

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I: FINANCIAL INFORMATION

Item 1.

Financial Statements

3

 

Unaudited Condensed Consolidated Balance Sheets

3

 

Unaudited Condensed Consolidated Statements of Operations

4

 

Unaudited Condensed Consolidated Statements of Comprehensive Income

5

 

Unaudited Condensed Consolidated Statements of Stockholders' Equity

6

 

Unaudited Condensed Consolidated Statements of Cash Flows

8

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

35

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

49

PART II: OTHER INFORMATION

Item 1.

Legal Proceedings

50

Item 1A.

Risk Factors

50

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

79

Item 3.

Defaults Upon Senior Securities

79

Item 4.

Mine Safety Disclosures

79

Item 5.

Other Information

79

Item 6.

Exhibits

80

Signatures

 

81

 

2


Table of Contents

 

PART I: FINANCIAL INFORMATION

Item 1.

Financial Statements

NETGEAR, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

As of

 

 

 

September 27,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

300,492

 

 

$

190,208

 

Short-term investments

 

 

6,326

 

 

 

5,499

 

Accounts receivable, net of allowance for doubtful accounts of $1,079 and $1,079 as of September 27, 2020 and December 31, 2019, respectively

 

 

340,004

 

 

 

277,168

 

Inventories

 

 

144,302

 

 

 

235,489

 

Prepaid expenses and other current assets

 

 

31,588

 

 

 

35,745

 

Total current assets

 

 

822,712

 

 

 

744,109

 

Property and equipment, net

 

 

15,313

 

 

 

17,683

 

Operating lease right-of-use assets, net

 

 

31,181

 

 

 

28,917

 

Intangibles, net

 

 

5,390

 

 

 

10,104

 

Goodwill

 

 

80,721

 

 

 

80,721

 

Other non-current assets

 

 

72,954

 

 

 

74,279

 

Total assets

 

$

1,028,271

 

 

$

955,813

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

87,747

 

 

$

80,531

 

Accrued employee compensation

 

 

29,772

 

 

 

20,024

 

Other accrued liabilities

 

 

196,297

 

 

 

189,547

 

Deferred revenue

 

 

10,883

 

 

 

6,450

 

Income taxes payable

 

 

1,299

 

 

 

1,839

 

Total current liabilities

 

 

325,998

 

 

 

298,391

 

Non-current income taxes payable

 

 

18,290

 

 

 

15,307

 

Non-current operating lease liabilities

 

 

27,395

 

 

 

25,434

 

Other non-current liabilities

 

 

10,321

 

 

 

7,988

 

Total liabilities

 

 

382,004

 

 

 

347,120

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

30

 

 

 

30

 

Additional paid-in capital

 

 

868,985

 

 

 

831,365

 

Accumulated other comprehensive income (loss)

 

 

(112

)

 

 

21

 

Accumulated deficit

 

 

(222,636

)

 

 

(222,723

)

Total stockholders’ equity

 

 

646,267

 

 

 

608,693

 

Total liabilities and stockholders’ equity

 

$

1,028,271

 

 

$

955,813

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


Table of Contents

 

NETGEAR, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 27,

2020

 

 

September 29,

2019

 

 

September 27,

2020

 

 

September 29,

2019

 

Net revenue

 

$

378,114

 

 

$

265,858

 

 

$

888,129

 

 

$

745,792

 

Cost of revenue

 

 

264,620

 

 

 

188,666

 

 

 

627,093

 

 

 

521,147

 

Gross profit

 

 

113,494

 

 

 

77,192

 

 

 

261,036

 

 

 

224,645

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

24,529

 

 

 

19,537

 

 

 

65,412

 

 

 

57,183

 

Sales and marketing

 

 

39,794

 

 

 

33,491

 

 

 

107,209

 

 

 

103,887

 

General and administrative

 

 

16,467

 

 

 

11,887

 

 

 

45,082

 

 

 

35,467

 

Other operating expenses, net

 

 

538

 

 

 

212

 

 

 

1,631

 

 

 

1,709

 

Total operating expenses

 

 

81,328

 

 

 

65,127

 

 

 

219,334

 

 

 

198,246

 

Income from operations

 

 

32,166

 

 

 

12,065

 

 

 

41,702

 

 

 

26,399

 

Interest income

 

 

98

 

 

 

639

 

 

 

409

 

 

 

2,122

 

Other income (expense), net

 

 

(515

)

 

 

(403

)

 

 

(4,787

)

 

 

425

 

Income before income taxes

 

 

31,749

 

 

 

12,301

 

 

 

37,324

 

 

 

28,946

 

Provision (benefit) for income taxes

 

 

6,214

 

 

 

(228

)

 

 

9,979

 

 

 

2,735

 

Net income

 

$

25,535

 

 

$

12,529

 

 

$

27,345

 

 

$

26,211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.85

 

 

$

0.41

 

 

$

0.92

 

 

$

0.84

 

Diluted

 

$

0.83

 

 

$

0.39

 

 

$

0.90

 

 

$

0.81

 

Weighted average shares used to compute net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

30,037

 

 

 

30,933

 

 

 

29,746

 

 

 

31,221

 

Diluted

 

 

30,741

 

 

 

31,819

 

 

 

30,341

 

 

 

32,327

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


Table of Contents

 

NETGEAR, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 27,

2020

 

 

September 29,

2019

 

 

September 27,

2020

 

 

September 29,

2019

 

Net income

 

$

25,535

 

 

$

12,529

 

 

$

27,345

 

 

$

26,211

 

Other comprehensive loss, before tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gains and losses on derivatives

 

 

(137

)

 

 

(37

)

 

 

(152

)

 

 

(16

)

Change in unrealized gains and losses on available-for-sale investments

 

 

 

 

 

 

 

 

 

 

 

16

 

Other comprehensive loss, before tax

 

 

(137

)

 

 

(37

)

 

 

(152

)

 

 

 

Tax benefit related to derivatives

 

 

18

 

 

 

7

 

 

 

19

 

 

 

1

 

Tax provision related to available-for-sale investments

 

 

 

 

 

 

 

 

 

 

 

(4

)

Other comprehensive loss, net of tax

 

 

(119

)

 

 

(30

)

 

 

(133

)

 

 

(3

)

Comprehensive income

 

$

25,416

 

 

$

12,499

 

 

$

27,212

 

 

$

26,208

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


Table of Contents

 

NETGEAR, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Total

Stockholder's

Equity

 

Balance as of December 31, 2019

 

 

29,925

 

 

$

30

 

 

$

831,365

 

 

$

21

 

 

$

(222,723

)

 

$

608,693

 

Change in unrealized gains and losses on derivatives, net of tax

 

 

 

 

 

 

 

 

 

 

 

350

 

 

 

 

 

 

350

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,173

)

 

 

(4,173

)

Stock-based compensation

 

 

 

 

 

 

 

 

6,336

 

 

 

 

 

 

 

 

 

6,336

 

Repurchase of common stock

 

 

(584

)

 

 

 

 

 

 

 

 

 

 

 

(15,008

)

 

 

(15,008

)

Restricted stock unit withholdings

 

 

(54

)

 

 

 

 

 

 

 

 

 

 

 

(1,347

)

 

 

(1,347

)

Issuance of common stock under stock-based compensation plans

 

 

305

 

 

 

 

 

 

2,940

 

 

 

 

 

 

 

 

 

2,940

 

Balance as of March 29, 2020

 

 

29,592

 

 

 

30

 

 

 

840,641

 

 

 

371

 

 

 

(243,251

)

 

 

597,791

 

Change in unrealized gains and losses on derivatives, net of tax

 

 

 

 

 

 

 

 

 

 

 

(364

)

 

 

 

 

 

(364

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,983

 

 

 

5,983

 

Stock-based compensation

 

 

 

 

 

 

 

 

9,172

 

 

 

 

 

 

 

 

 

9,172

 

Repurchase of common stock

 

 

(315

)

 

 

 

 

 

 

 

 

 

 

 

(7,500

)

 

 

(7,500

)

Restricted stock unit withholdings

 

 

(95

)

 

 

 

 

 

 

 

 

 

 

 

(2,260

)

 

 

(2,260

)

Issuance of common stock under stock-based compensation plans

 

 

502

 

 

 

 

 

 

3,324

 

 

 

 

 

 

 

 

 

3,324

 

Balance as of June 28, 2020

 

 

29,684

 

 

 

30

 

 

 

853,137

 

 

 

7

 

 

 

(247,028

)

 

 

606,146

 

Change in unrealized gains and losses on derivatives, net of tax

 

 

 

 

 

 

 

 

 

 

 

(119

)

 

 

 

 

 

(119

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,535

 

 

 

25,535

 

Stock-based compensation

 

 

 

 

 

 

 

 

7,218

 

 

 

 

 

 

 

 

 

7,218

 

Restricted stock unit withholdings

 

 

(39

)

 

 

 

 

 

 

 

 

 

 

 

(1,143

)

 

 

(1,143

)

Issuance of common stock under stock-based compensation plans

 

 

521

 

 

 

 

 

 

8,630

 

 

 

 

 

 

 

 

 

8,630

 

Balance as of September 27, 2020

 

 

30,166

 

 

$

30

 

 

$

868,985

 

 

$

(112

)

 

$

(222,636

)

 

$

646,267

 

 

6


Table of Contents

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Total

Stockholder's

Equity

 

Balance as of December 31, 2018

 

 

31,562

 

 

$

32

 

 

$

793,585

 

 

$

(15

)

 

$

(166,050

)

 

$

627,552

 

Change in unrealized gains and losses on available-for-sale investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

12

 

Change in unrealized gains and losses on derivatives, net of tax

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

 

 

 

17

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,843

 

 

 

12,843

 

Stock-based compensation

 

 

 

 

 

 

 

 

6,457

 

 

 

 

 

 

 

 

 

6,457

 

Repurchase of common stock

 

 

(436

)

 

 

 

 

 

 

 

 

 

 

 

(15,000

)

 

 

(15,000

)

Restricted stock unit withholdings

 

 

(89

)

 

 

 

 

 

 

 

 

 

 

 

(3,344

)

 

 

(3,344

)

Issuance of common stock under stock-based compensation plans

 

 

430

 

 

 

 

 

 

4,371

 

 

 

 

 

 

 

 

 

4,371

 

Balance as of March 31, 2019

 

 

31,467

 

 

 

32

 

 

 

804,413

 

 

 

14

 

 

 

(171,551

)

 

 

632,908

 

Change in unrealized gains and losses on derivatives, net of tax

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

839

 

 

 

839

 

Stock-based compensation

 

 

 

 

 

 

 

 

6,739

 

 

 

 

 

 

 

 

 

6,739

 

Repurchase of common stock

 

 

(570

)

 

 

(1

)

 

 

 

 

 

 

 

 

(16,979

)

 

 

(16,980

)

Restricted stock unit withholdings

 

 

(79

)

 

 

 

 

 

 

 

 

 

 

 

(2,314

)

 

 

(2,314

)

Issuance of common stock under stock-based compensation plans

 

 

292

 

 

 

 

 

 

882

 

 

 

 

 

 

 

 

 

882

 

Balance as of June 30, 2019

 

 

31,110

 

 

 

31

 

 

 

812,034

 

 

 

12

 

 

 

(190,005

)

 

 

622,072

 

Change in unrealized gains and losses on derivatives, net of tax

 

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

 

 

 

(30

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,529

 

 

 

12,529

 

Stock-based compensation

 

 

 

 

 

 

 

 

6,986

 

 

 

 

 

 

 

 

 

6,986

 

Repurchase of common stock

 

 

(679

)

 

 

(1

)

 

 

 

 

 

 

 

 

(21,965

)

 

 

(21,966

)

Restricted stock unit withholdings

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

 

(400

)

 

 

(400

)

Issuance of common stock under stock-based compensation plans

 

 

162

 

 

 

1

 

 

 

2,946

 

 

 

 

 

 

 

 

 

2,947

 

Balance as of September 29, 2019

 

 

30,581

 

 

$

31

 

 

$

821,966

 

 

$

(18

)

 

$

(199,841

)

 

$

622,138

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


Table of Contents

 

NETGEAR, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

<

 

 

Nine Months Ended

 

 

 

September 27,

2020

 

 

September 29,

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

27,345

 

 

$

26,211

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

14,243

 

 

 

14,577

 

Stock-based compensation

 

 

22,726

 

 

 

20,183

 

Impairment of long-term investments

 

 

5,372

 

 

 

 

Deferred income taxes

 

 

1,574

 

 

 

503

 

Provision for excess and obsolete inventory

 

 

6,353

 

 

 

2,921

 

Other

 

 

278

 

 

 

253

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(62,837

)

 

 

55,597

 

Inventories

 

 

84,834

 

 

 

(34,634

)

Prepaid expenses and other assets

 

 

3,975

 

 

 

2,960

 

Accounts payable

 

 

6,862

 

 

 

(54,574

)

Accrued employee compensation

 

 

10,924

 

 

 

(13,562

)

Other accrued liabilities

 

 

5,668

 

 

 

(45,240

)

Deferred revenue

 

 

5,302

 

 

 

(4,152

)

Income taxes payable

 

 

2,443

 

 

 

(7,087

)

Net cash provided by (used in) operating activities

 

 

135,062

 

 

 

(36,044

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(288

)

 

 

(282

)

Proceeds from maturities of short-term investments