UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended
or
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:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class |
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Trading symbol(s): |
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Name of each exchange on which registered |
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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.
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).
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 |
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Non-Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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. ☐ |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was
TABLE OF CONTENTS
Item 1. |
3 |
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Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) |
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Unaudited Condensed Consolidated Statements of Stockholders' Equity |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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69 |
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2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
NETGEAR, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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June 30, 2024 |
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December 31, 2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Goodwill |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued employee compensation |
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Other accrued liabilities |
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Deferred revenue |
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Income taxes payable |
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Total current liabilities |
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Non-current income taxes payable |
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Non-current operating lease liabilities |
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Other non-current liabilities |
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Total liabilities |
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(Note 8) |
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Stockholders’ equity: |
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Common stock |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
NETGEAR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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June 30, 2024 |
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July 2, 2023 |
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June 30, 2024 |
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July 2, 2023 |
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Net revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Litigation reserves, net |
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— |
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— |
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Restructuring and other charges |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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Other income, net |
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Loss before income taxes |
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( |
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( |
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( |
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( |
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Provision for (benefit from) income taxes |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Net loss per share |
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Basic |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average shares used to compute net loss per share: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
NETGEAR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
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Three Months Ended |
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Six Months Ended |
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June 30, 2024 |
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July 2, 2023 |
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June 30, 2024 |
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July 2, 2023 |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss), before tax: |
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Change in unrealized gains and losses on derivatives |
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( |
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( |
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Change in unrealized gains and losses on available-for-sale investments |
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( |
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( |
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( |
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Other comprehensive income (loss), before tax |
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( |
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( |
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Tax benefit (provision) related to derivatives |
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( |
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( |
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Tax provision related to available-for-sale investments |
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( |
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Other comprehensive income (loss), net of tax |
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( |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
NETGEAR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
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Common Stock |
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Shares |
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Amount |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Balance as of December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Change in unrealized gains and losses on available-for-sale investments, net of tax |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Change in unrealized gains and losses on derivatives, net of tax |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Repurchase of common stock |
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( |
) |
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( |
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— |
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— |
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( |
) |
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( |
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Restricted stock unit withholdings |
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( |
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— |
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— |
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— |
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( |
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( |
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Issuance of common stock under stock-based compensation plans |
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— |
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— |
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— |
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Balance as of March 31, 2024 |
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( |
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Change in unrealized gains and losses on available-for-sale investments, net of tax |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Change in unrealized gains and losses on derivatives, net of tax |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Repurchase of common stock |
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( |
) |
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( |
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— |
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— |
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( |
) |
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( |
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Restricted stock unit withholdings |
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( |
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— |
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— |
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— |
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( |
) |
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( |
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Issuance of common stock under stock-based compensation plans |
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— |
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— |
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— |
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Balance as of June 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Common Stock |
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Shares |
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Amount |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Change in unrealized gains and losses on available-for-sale investments, net of tax |
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— |
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— |
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— |
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— |
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Change in unrealized gains and losses on derivatives, net of tax |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Restricted stock unit withholdings |
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( |
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— |
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— |
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— |
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( |
) |
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( |
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Issuance of common stock under stock-based compensation plans |
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— |
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— |
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— |
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Balance as of April 2, 2023 |
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( |
) |
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Change in unrealized gains and losses on available-for-sale investments, net of tax |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Change in unrealized gains and losses on derivatives, net of tax |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Restricted stock unit withholdings |
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( |
) |
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— |
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— |
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— |
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( |
) |
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( |
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Issuance of common stock under stock-based compensation plans |
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— |
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— |
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— |
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— |
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— |
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Balance as of July 2, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
NETGEAR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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Six Months Ended |
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June 30, |
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July 2, |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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Gain on investments, net |
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( |
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( |
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Deferred income taxes |
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( |
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Provision for excess and obsolete inventory |
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Changes in assets and liabilities: |
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Accounts receivable, net |
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Inventories |
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( |
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Prepaid expenses and other assets |
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Accounts payable |
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( |
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( |
) |
Accrued employee compensation |
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( |
) |
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Other accrued liabilities |
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( |
) |
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( |
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Deferred revenue |
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Income taxes payable |
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( |
) |
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Net cash provided by (used in) operating activities |
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( |
) |
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Cash flows from investing activities: |
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Purchases of short-term investments |
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( |
) |
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( |
) |
Proceeds from maturities of short-term investments |
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Purchases of property and equipment |
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( |
) |
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( |
) |
Purchases of long-term investments |
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|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Repurchases of common stock |
|
|
( |
) |
|
|
|
|
Restricted stock unit withholdings |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of common stock under employee stock purchase plan |
|
|
|
|
|
|
||
Net cash provided by (used in) financing activities |
|
|
( |
) |
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
( |
) |
|
Cash and cash equivalents, at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, at end of period |
|
$ |
|
|
$ |
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Unpaid property and equipment |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
NETGEAR, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Basis of Presentation
NETGEAR, Inc. (“NETGEAR” or the “Company”) is a global company, incorporated in Delaware in January 1996. The Company turns ideas into innovative, high-performance and premium networking products that connect people, power businesses and advance the way we live. The Company is dedicated to delivering innovative and highly differentiated connected solutions ranging from easy-to-use premium WiFi solutions, security and support services to protect and enhance home networks, to switching and wireless solutions to augment business networks and audio and video over Ethernet for Pro AV applications. Its products and services are built on a variety of technologies such as wireless (WiFi and 4G/5G mobile), Ethernet and powerline, with a focus on reliability and ease-of-use. Additionally, the Company continually invests in research and development to create new technologies and services and to capitalize on technological inflection points and trends, such as WiFi 7, audio and video over Ethernet, and future technologies. Its product line consists of devices that create and extend wired and wireless networks, as well as services that complement and enhance the Company’s product line offerings. These products are available in multiple configurations to address the changing needs of the Company’s customers in each geographic region.
The Company sells networking products through multiple sales channels worldwide, including traditional retailers, online retailers, wholesale distributors, direct market resellers (“DMRs”), value-added resellers (“VARs”), broadband service providers and its direct online store at www.netgear.com.
The accompanying unaudited condensed consolidated financial statements include the accounts of NETGEAR, Inc. and its wholly owned subsidiaries. They have been prepared in accordance with established guidelines for interim financial reporting and the instructions of Form 10-Q and Article 10 of Regulation S-X. All significant intercompany balances and transactions have been eliminated in consolidation. The balance sheet dated December 31, 2023, has been derived from audited financial statements at such date. These unaudited condensed consolidated financial statements do not include all of the information and footnotes typically found in the audited consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments considered necessary to fairly state the Company's financial position, results of operations, comprehensive income (loss), stockholder's equity and cash flows for the periods indicated. These unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report”).
The Company's fiscal year begins on January 1 of the year stated and ends on December 31 of the same year. The Company reports its results on a fiscal quarter basis rather than on a calendar quarter basis. Under the fiscal quarter basis, each of the first three fiscal quarters ends on the Sunday closest to the calendar quarter end, with the fourth quarter ending on December 31.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the financial statements, and (iii) the reported amounts of net revenue and expenses during the reported period. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable under the circumstances. As of the date of issuance of these condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments or revise the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ materially from those estimates and operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any future period.
8
Segment Recast
In the first fiscal quarter of 2024, resulting from certain segment structure changes, the Company revised its allocation method by allocating certain historically unallocated operating expenses to its individual operating segments. This change impacted Note 11, Segment Information. The prior-year segment financial information has been recast to conform to the current-year presentation. None of the changes impact previously reported consolidated net revenue, income (loss) from operations, net income (loss) per share, total assets, or stockholders’ equity.
Note 2. Summary of Significant Accounting Policies
No material changes have been made to the Company’s significant accounting policies disclosed in Note 1, The Company and Summary of Significant Accounting Policies, in Part II, Item 8 “Financial Statements and Supplementary Data” in its Annual Report.
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company for the year ended 2024 and early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company does not expect that the guidance will have material impacts on its financial position, results of operations or cash flows. The Company is evaluating the impact that the updated standard will have on its financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions. ASU 2023-09 is effective for the Company for the year ended December 31, 2025 and early adoption is permitted. The guidance allows for adoption using either a prospective or retrospective transition method. The Company is evaluating the impact that the updated standard will have on its financial statement disclosures.
With the exception of the new standards discussed above, there have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s financial position, results of operations and cash flows.
Note 3. Revenue
Revenue from contracts with customers is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
Transaction Price Allocated to the Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. Unsatisfied and partially unsatisfied performance obligations consist of contract liabilities, in-transit orders with destination terms, and non-cancellable backlog. Non-cancellable backlog includes goods for which customer purchase orders have been accepted, that are scheduled or in the process of being scheduled for shipment, and that are not yet invoiced.
The following table summarizes estimated revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of June 30, 2024:
(In thousands) |
|
Less than |
|
|
|
|
|
|
Total |
|
||||||
Performance obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
9
Contract Balances
The Company records accounts receivable when it has an unconditional right to consideration. Contract liabilities are recorded when cash payments are received or due in advance of performance. Contract liabilities consist of advance payments and deferred revenue, where the Company has unsatisfied performance obligations. Contract liabilities are mainly classified as Deferred revenue on the unaudited condensed consolidated balance sheets.
Payment terms vary by customer. The time between invoicing and when payment is due is not significant. For certain products or services and customer types, payment is required before the products or services are delivered to the customer.
The following table reflects the contract balances:
(In thousands) |
|
Balance Sheet Location |
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Accounts receivable, net |
|
Accounts receivable, net |
|
$ |
|
|
$ |
|
||
Contract liabilities – current |
|
Deferred revenue |
|
$ |
|
|
$ |
|
||
Contract liabilities – non-current |
|
Other non-current liabilities |
|
$ |
|
|
$ |
|
||
The difference in the balances of the Company’s contract assets and liabilities as of June 30, 2024 and December 31, 2023, primarily results from the timing difference between the Company’s performance and the customer’s payment.
During the six months ended June 30, 2024, $
There were no significant changes in estimates during the period that would affect the contract balances.
Disaggregation of Revenue
In the following tables, net revenue is disaggregated by geographic region and sales channel. The Company conducts business across
|
|
Three Months Ended |
|
|
|||||||||||||||||||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
|
||||||||||||||||||
(In thousands) |
|
Connected |
|
|
NETGEAR for Business |
|
|
Total |
|
|
Connected |
|
|
NETGEAR for Business |
|
|
Total |
|
|
||||||
Geographic regions (1) : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Americas |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
APAC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
Sales channels: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Service provider |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
Non-service provider |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
10
|
|
Six Months Ended |
|
|||||||||||||||||||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||||||||||||||||||
(In thousands) |
|
Connected |
|
|
NETGEAR for Business |
|
|
Total |
|
|
Connected |
|
|
NETGEAR for Business |
|
|
Total |
|
||||||
Geographic regions (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Americas |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
APAC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||