Company Quick10K Filing
Quick10K
Netgear
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$33.61 31 $1,058
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-07-01 Quarter: 2018-07-01
10-Q 2018-04-01 Quarter: 2018-04-01
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-10-01 Quarter: 2017-10-01
10-Q 2017-07-02 Quarter: 2017-07-02
10-Q 2017-04-02 Quarter: 2017-04-02
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-02 Quarter: 2016-10-02
10-Q 2016-07-03 Quarter: 2016-07-03
10-Q 2016-04-03 Quarter: 2016-04-03
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-27 Quarter: 2015-09-27
10-Q 2015-06-28 Quarter: 2015-06-28
10-Q 2015-03-29 Quarter: 2015-03-29
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-28 Quarter: 2014-09-28
10-Q 2014-06-29 Quarter: 2014-06-29
10-Q 2014-03-30 Quarter: 2014-03-30
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-24 Earnings, Other Events, Exhibits
8-K 2019-05-30 Shareholder Vote
8-K 2019-04-24 Earnings, Exhibits
8-K 2019-04-19 Officers, Other Events, Exhibits
8-K 2019-02-26 Officers, Exhibits
8-K 2019-02-06 Earnings, Exhibits
8-K 2018-12-31 M&A, Exhibits
8-K 2018-12-18 Other Events, Exhibits
8-K 2018-11-28 Other Events, Exhibits
8-K 2018-11-20 Officers
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-08-02 Regulation FD, Exhibits
8-K 2018-08-02 Enter Agreement, Officers, Regulation FD, Exhibits
8-K 2018-07-23 Earnings, Exhibits
8-K 2018-07-23 Regulation FD, Exhibits
8-K 2018-07-19 Officers
8-K 2018-07-06 Regulation FD, Exhibits
8-K 2018-07-02 Officers, Exhibits
8-K 2018-05-31 Officers, Shareholder Vote
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-04-20 Amend Bylaw, Other Events, Exhibits
8-K 2018-02-06 Earnings, Other Events, Exhibits
GLW Corning 21,487
CIEN Ciena 6,131
VEON VEON 4,515
TDS Telephone & Data Systems 2,806
BDC Belden 1,805
AVYA Avaya Holdings 1,519
VCRA Vocera Communications 718
GTT GTT Communications 517
ENT Global Eagle Entertainment 60
NVMM Novume Solutions 33
NTGR 2019-06-30
Part I: Financial Information
Item 1. Financial Statements
Note 1. The Company and Basis of Presentation
Note 2. Summary of Significant Accounting Policies
Note 3. Revenue
Note 5. Business Acquisition
Note 6. Balance Sheet Components
Note 7. Derivative Financial Instruments
Note 8. Net Income (Loss) per Share
Note 9. Income Taxes
Note 10. Commitments and Contingencies
Note 11. Stockholders' Equity
Note 12. Employee Benefit Plans
Note 13. Segment Information
Note 14. Fair Value Measurements
Note 15. Leases
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii: Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ntgr-ex31120190630x10q.htm
EX-31.2 ntgr-ex31220190630x10q.htm
EX-32.1 ntgr-ex32120190630x10q.htm
EX-32.2 ntgr-ex32220190630x10q.htm

Netgear Earnings 2019-06-30

NTGR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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 June 30, 2019.

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 Exchange Act Rule 12b-2).    Yes      No  
The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 31,113,480 as of July 26, 2019.

1

Table of Contents

TABLE OF CONTENTS
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 

2

Table of Contents

PART I: FINANCIAL INFORMATION
Item 1.
Financial Statements
NETGEAR, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
As of
 
June 30,
2019
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
214,611

 
$
201,047

Short-term investments
3,700

 
73,317

Accounts receivable, net of allowance for doubtful accounts of $1,079 and $1,254 as of June 30, 2019 and December 31, 2018, respectively
238,635

 
303,667

Inventories
276,316

 
243,871

Prepaid expenses and other current assets
38,687

 
35,997

Total current assets
771,949

 
857,899

Property and equipment, net
21,074

 
20,177

Operating lease right-of-use assets, net
34,063

 

Intangibles, net
13,297

 
17,146

Goodwill
80,721

 
80,721

Other non-current assets
71,403

 
67,433

Total assets
$
992,507

 
$
1,043,376

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
108,444

 
$
139,748

Accrued employee compensation
23,436

 
31,666

Other accrued liabilities
171,873

 
199,472

Deferred revenue
10,093

 
11,086

Income taxes payable
1,141

 
2,020

Total current liabilities
314,987

 
383,992

Non-current income taxes payable
18,278

 
19,600

Non-current operating lease liabilities
29,263

 

Other non-current liabilities
7,907

 
12,232

Total liabilities
370,435

 
415,824

Commitments and contingencies (Note 10)


 


Stockholders’ equity:
 
 
 
Common stock
31

 
32

Additional paid-in capital
812,034

 
793,585

Accumulated other comprehensive income (loss)
12

 
(15
)
Accumulated deficit
(190,005
)
 
(166,050
)
Total stockholders’ equity
622,072

 
627,552

Total liabilities and stockholders’ equity
$
992,507

 
$
1,043,376

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
 
Six Months Ended
 
June 30,
2019
 
July 1,
2018
 
June 30,
2019
 
July 1,
2018
Net revenue
$
230,852

 
$
255,276

 
$
479,934

 
$
500,477

Cost of revenue
165,407

 
174,996

 
332,481

 
343,878

Gross profit
65,445

 
80,280

 
147,453

 
156,599

Operating expenses:
 
 
 
 
 
 
 
Research and development
18,814

 
21,946

 
37,646

 
43,137

Sales and marketing
34,541

 
38,552

 
70,396

 
76,426

General and administrative
10,463

 
18,458

 
23,580

 
34,219

Separation expense

 

 
264

 

Restructuring and other charges
1,291

 
1,376

 
1,223

 
1,367

Litigation reserves, net
10

 
5

 
10

 
5

Total operating expenses
65,119

 
80,337

 
133,119

 
155,154

Income (loss) from operations
326

 
(57
)
 
14,334

 
1,445

Interest income, net
782

 
1,073

 
1,483

 
1,821

Other income (expense), net
487

 
788

 
828

 
(530
)
Income before income taxes
1,595

 
1,804

 
16,645

 
2,736

Provision for income taxes
756

 
1,271

 
2,963

 
1,185

Net income from continuing operations
839

 
533

 
13,682

 
1,551

Net loss from discontinued operations, net of tax

 
(5,763
)
 

 
(1,191
)
Net income (loss)
$
839

 
$
(5,230
)
 
$
13,682

 
$
360

 
 
 
 
 
 
 
 
Net income (loss) per share - basic:
 
 
 
 
 
 
 
Income from continuing operations
$
0.03

 
$
0.02

 
$
0.44

 
$
0.05

Loss from discontinued operations

 
(0.19
)
 

 
(0.04
)
Net income (loss)
$
0.03

 
$
(0.17
)
 
$
0.44

 
$
0.01

 
 
 
 
 
 
 
 
Net income (loss) per share - diluted:
 
 
 
 
 
 
 
Income from continuing operations
$
0.03

 
$
0.02

 
$
0.42

 
$
0.05

Loss from discontinued operations

 
(0.18
)
 

 
(0.04
)
Net income (loss)
$
0.03

 
$
(0.16
)
 
$
0.42

 
$
0.01

 
 
 
 
 
 
 
 
Weighted average shares used to compute net income (loss) per share:
 
 
 
 
 
 
 
Basic
31,246

 
31,674

 
31,365

 
31,550

Diluted
32,112

 
32,742

 
32,518

 
32,722

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 (LOSS)
(In thousands)

 
Three Months Ended
 
Six Months Ended
 
June 30,
2019
 
July 1,
2018
 
June 30,
2019
 
July 1,
2018
Net income (loss)
$
839

 
$
(5,230
)
 
$
13,682

 
$
360

Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
Change in unrealized gains and losses on derivatives
(2
)
 
124

 
21

 
816

Change in unrealized gains and losses on available-for-sale investments
1

 
69

 
16

 
31

Other comprehensive income (loss), before tax
(1
)
 
193

 
37

 
847

Tax provision related to derivatives

 
(15
)
 
(6
)
 
(76
)
Tax provision related to available-for-sale investments
(1
)
 
(16
)
 
(4
)
 
(27
)
Other comprehensive income (loss), net of tax
(2
)
 
162

 
27

 
744

Comprehensive income (loss)
$
837

 
$
(5,068
)
 
$
13,709

 
$
1,104

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, 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 available-for-sale investments, net of tax

 

 

 

 

 

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

 
Common Stock
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
 Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Total Stockholder's Equity
Balance as of December 31, 2017
31,320

 
$
31

 
$
603,137

 
$
(851
)
 
$
128,168

 
$
730,485

Adoptions of ASU 2014-09 (ASC 606 Rev Rec), ASU 2016-16, and ASU 2018-02, net of tax

 

 

 

 
8,593

 
8,593

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

 

 

 
(49
)
 

 
(49
)
Change in unrealized gains and losses on derivatives, net of tax

 

 

 
631

 

 
631

Net income

 

 

 

 
5,590

 
5,590

Stock-based compensation

 

 
8,150

 

 

 
8,150

Restricted stock unit withholdings
(38
)
 

 

 

 
(2,271
)
 
(2,271
)
Issuance of common stock under stock-based compensation plans
252

 
1

 
4,589

 

 

 
4,590

Balance as of April 1, 2018
31,534

 
$
32

 
$
615,876

 
$
(269
)
 
$
140,080

 
$
755,719

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

 

 

 
53

 

 
53

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

 

 

 
109

 

 
109

Net loss

 

 

 

 
(5,230
)
 
(5,230
)
Stock-based compensation

 

 
8,970

 

 

 
8,970

Restricted stock unit withholdings
(85
)
 

 

 

 
(4,897
)
 
(4,897
)
Issuance of common stock under stock-based compensation plans
332

 

 
1,012

 

 

 
1,012

Balance as of July 1, 2018
31,781

 
$
32

 
$
625,858

 
$
(107
)
 
$
129,953

 
755,736

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

6

Table of Contents

NETGEAR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
Six Months Ended
 
June 30, 2019
 
July 1, 2018
Cash flows from operating activities:
 
 
 
Net income
$
13,682

 
$
360

Net loss from discontinued operations

 
1,191

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
9,965

 
9,777

Purchase premium amortization/discount accretion on investments, net
(170
)
 
(311
)
Stock-based compensation
13,197

 
14,110

(Gains)/charges related to long-term investments, net

 
1,400

Deferred income taxes
2,116

 
3,437

Changes in assets and liabilities
 
 
 
Accounts receivable
65,032

 
27,634

Inventories
(32,445
)
 
(7,312
)
Prepaid expenses and other assets
(4,812
)
 
(14,323
)
Accounts payable
(29,083
)
 
(8,784
)
Accrued employee compensation
(8,229
)
 
6,249

Other accrued liabilities
(37,161
)
 
(6,980
)
Deferred revenue
182

 
(528
)
Income taxes payable
(2,201
)
 
(5,000
)
Net cash provided by (used in) continuing operating activities
(9,927
)
 
20,920

Net cash provided by discontinued operating activities

 
19,147

Net cash provided by (used in) operating activities
(9,927
)
 
40,067

Cash flows from investing activities:
 
 

Purchases of short-term investments
(149
)
 
(70,017
)
Proceeds from maturities of short-term investments
70,649

 
69,412

Purchases of property and equipment
(9,423
)
 
(5,835
)
Purchases of long-term investments
(5,200
)
 

Net cash provided by (used in) continuing investing activities
55,877

 
(6,440
)
Net cash used in discontinued investing activities

 
(7,533
)
Net cash provided by (used in) investing activities
55,877

 
(13,973
)
Cash flows from financing activities:
 
 
 
Repurchases of common stock
(31,980
)
 

Restricted stock unit withholdings
(5,658
)
 
(7,168
)
Proceeds from exercise of stock options
2,949

 
2,869

Proceeds from issuance of common stock under employee stock purchase plan
2,303

 
2,732

Net cash used in continuing financing activities
(32,386
)
 
(1,567
)
Net cash used in financing activities
(32,386
)
 
(1,567
)
Net increase in cash and cash equivalents
13,564

 
24,527

Cash and cash equivalents, at beginning of period
201,047

 
202,870

Cash and cash equivalents, at end of period
$
214,611

 
$
227,397

Non-cash investing and financing activities:
 
 
 
Additions to property and equipment included in accounts payable and other accrued liabilities
$
2,411

 
$
292

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

7

Table of Contents
NETGEAR, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


 
Note 1.
The Company and Basis of Presentation

NETGEAR, Inc. (“NETGEAR” or the “Company”) was incorporated in Delaware in January 1996. The Company is a global company that delivers innovative networking and Internet connected products to consumers and businesses. The Company's products are built on a variety of proven technologies such as wireless (WiFi and 4G 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 to capitalize on technological inflection points, such as 5G. The product line consists of devices that create and extend wired and wireless networks as well as devices that provide a special function and attach to the network, such as smart digital canvasses and services. These products are available in multiple configurations to address the changing needs of our customers in each geographic region in which the Company's products are sold.

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, 2018 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, 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, 2018.

On December 31, 2018, the Company completed the Spin-Off of Arlo Technologies, Inc. (“Arlo”), a majority owned subsidiary and reporting segment of NETGEAR. Arlo’s historical financial results for periods prior to the Spin-Off are reflected in the unaudited condensed consolidated financial statements as discontinued operations. For further detail, refer to Note 4. Discontinued Operations.
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 interim 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. Actual results could differ materially from those estimates and operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or any future period.


 

8

Table of Contents
NETGEAR, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 2.
Summary of Significant Accounting Policies

The Company's significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Refer to Note 15. Leases, for the updated accounting policy on leases upon adoption of ASU 2016-02, "Leases" as of January 1, 2019.

Recent accounting pronouncements

Accounting Pronouncements Recently Adopted

ASU 2016-02

In February 2016, FASB issued ASU 2016-02, "Leases" (Topic 842), which requires a lessee to recognize on the balance sheets a right-of-use asset, representing its right to use the underlying asset for the lease term, and a corresponding lease liability. The liability is equal to the present value of lease payments while the right-of-use asset is based on the liability, subject to adjustment, such as for initial direct costs. In addition, ASU 2016-02 expands the disclosure requirements for lessees.

The Company adopted the new standard effective January 1, 2019 and was required to record a lease asset and lease liability related to its operating leases. The Company elected to utilize the alternative modified transition method, under which the cumulative-effect adjustment to the opening balance is recognized on the date of adoption while comparative prior periods continue to be reported under the guidance in effect prior to January 1, 2019. Accordingly, the Company did not restate or make related disclosures under the new standard for comparative prior periods in the period of adoption, and the Company applied the new lease standard prospectively to leases existing or commencing on or after January 1, 2019. The Company elected the package of practical expedients permitted under the transition guidance within the standard to not (1) reassess whether any expired or existing contracts are considered or contain leases; (2) reassess the lease classification for any expired or existing leases; and (3) reassess the initial direct costs for any existing leases. The Company made an accounting policy election to treat the lease and non-lease components in its office lease contracts as a single performance obligation to the extent that the timing and pattern of transfer are similar for the lease and non-lease components and the lease component qualifies as an operating lease. The Company also made an accounting policy election not to recognize lease liabilities and right-of-use assets for leases with a term of 12 months or less. The Company will recognize these lease payments on a straight-line basis over the lease term.


9

Table of Contents
NETGEAR, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes the impact of adopting ASU 2016-02 on the Company’s unaudited condensed consolidated balance sheet for the fiscal year beginning January 1, 2019 as an adjustment to the opening balances:
 
As of
 
Adjustments
 
As of
 
December 31,
2018
 
 
January 1,
2019
 
(In thousands)
Assets:
 
 
 
 
 
Prepaid expenses and other current assets
$
35,997

 
$
(543
)
 
$
35,454

Total current assets
$
857,899

 
$
(543
)
 
$
857,356

Operating lease right-of-use assets, net
$

 
$
39,110

 
$
39,110

Total assets
$
1,043,376

 
$
38,567

 
$
1,081,943

Liabilities:
 
 
 
 
 
Other accrued liabilities
$
199,472

 
$
10,909

 
$
210,381

Total current liabilities
$
383,992

 
$
10,909

 
$
394,901

Non-current operating lease liabilities
$

 
$
33,823

 
$
33,823

Other non-current liabilities
$
12,232

 
$
(6,165
)
 
$
6,067

Total liabilities
$
415,824

 
$
38,567

 
$
454,391

Total liabilities and stockholders’ equity
$
1,043,376

 
$
38,567

 
$
1,081,943



The standard did not impact our statement of operations and cash flows.

Accounting Pronouncements Not Yet Effective

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" (Topic 326), which replaces the incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables. Credit losses on available-for-sale debt securities with unrealized losses will be recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost. The Company will adopt the new standard when it becomes effective in the first fiscal quarter of 2020. The Company is currently assessing the potential impact of the new guidance on its accounting policies, processes and controls but does not expect that it will have material impacts on its financial position, results of operations or cash flows.

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.


10

Table of Contents
NETGEAR, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 and services for which customer purchase orders have been accepted that are scheduled or in the process of being scheduled for shipment.

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2019:
 
 
1 year
 
2 years
 
Greater than 2 years
 
Total
 
 
(In thousands)
Performance obligations
 
$
58,161

 
$
991

 
$
1,013

 
$
60,165



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.

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 changes in contract balances for the six months ended June 30, 2019:
 
Balance Sheet Location
June 30, 2019
December 31, 2018
$ change
% change
 
 
(In thousands)
 
Accounts Receivable, net
Accounts receivable, net
$
238,635

$
303,667

$
(65,032
)
(21.4
)%
Contract liabilities - current
Deferred revenue
$
10,093

$
11,086

$
(993
)
(9.0
)%
Contract liabilities - non-current
Other non-current liabilities
$
1,954

$
779

$
1,175

150.8
 %


The difference in the balances of the Company’s contract assets and liabilities as of June 30, 2019 and December 31, 2018 primarily results from the timing difference between the Company’s performance and the customer’s payment.

During the six months ended June 30, 2019, $6.9 million of revenue was deferred due to unsatisfied performance obligations for service contracts and undelivered product commitments. During the six months, $6.7 million of revenue was recognized for the satisfaction of performance obligations over time. $5.5 million of this recognized revenue was included in the contract liability balance at the beginning of the period.

There were no significant changes in estimates during the period that would affect the contract balances.


11

Table of Contents
NETGEAR, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Disaggregation of Revenue

In the following table, net revenue is disaggregated by geographic region and sales channel. The Company conducts business across three geographic regions: Americas; Europe, Middle-East and Africa (“EMEA”); and Asia Pacific ("APAC"). The table also includes a reconciliation of the disaggregated revenue by reportable segment. The Company operates and reports in two segments: Connected Home, and Small and Medium Business ("SMB"). Sales and usage-based taxes are excluded from net revenue.

 
Three Months Ended
 
June 30,
2019
 
July 1,
2018
 
Connected Home
 
SMB
 
Total
 
Connected Home
 
SMB
 
Total
 
(In thousands)
Geographic regions:
 
 
 
 
 
 
 
 
 
 
 
Americas
$
131,669

 
$
25,501

 
$
157,170

 
$
145,570

 
$
28,844

 
$
174,414

EMEA
17,526

 
25,565

 
43,091

 
20,505

 
27,704

 
48,209

APAC
18,300

 
12,291

 
30,591

 
20,349

 
12,304

 
32,653

Total net revenue
$
167,495

 
$
63,357

 
$
230,852

 
$
186,424

 
$
68,852

 
$
255,276

Sales channels:
 
 


 


 


 


 


Service provider
$
26,901

 
$
922

 
$
27,823

 
$
46,333

 
$
700

 
$
47,033

Non-service provider
140,594

 
62,435

 
203,029

 
140,091

 
68,152

 
208,243

Total net revenue
$
167,495

 
$
63,357

 
$
230,852

 
$
186,424

 
$
68,852

 
$
255,276


 
Six Months Ended
 
June 30,
2019
 
July 1,
2018
 
Connected Home
 
SMB
 
Total
 
Connected Home
 
SMB
 
Total
 
(In thousands)
Geographic regions:
 
 
 
 
 
 
 
 
 
 
 
Americas
$
245,356

 
$
59,843

 
$
305,199

 
$
274,608

 
$
59,818

 
$
334,426

EMEA
43,216

 
56,838

 
100,054

 
41,515

 
54,128

 
95,643

APAC
48,288