Thursday after the bell, NETGEAR Inc. (NTGR), a provider of networking solutions, reported a steep rise in third-quarter profit, crushing analysts' estimates, by keeping a tight rein on expenses and helped by robust back to school demand and market share gain in the U.S. The news was well-received by investors who bid the stock up over 9% in after-hours.
On a GAAP basis, the company's net income for the third-quarter ended September 27, 2009 was $8.5 million or $0.24 per share compared to $3.1 million or $0.09 per share in the year-ago quarter.
The GAAP net income for the third-quarter of 2009 included amortization of intangible assets of $0.04 per share, stock-based compensation expense of $0.08 per share, litigation reserves of $0.01 per share and tax effect of $0.04 per share. The GAAP net income for the year-ago quarter included amortization of intangible assets of $0.03 per share, stock-based compensation expense of $0.08 per share, restructuring charges of $0.03 per share and tax effect of $0.04 per share.
Excluding items, NETGEAR's non-GAAP income for the quarter rose to $10.97 million or $0.31 per share from $6.89 million or $0.19 per share in the year-ago quarter. Analysts polled by Thomson Reuters expected the company to earn $0.08 per share.
NETGEAR's quarterly net revenue declined almost 5% to $171.1 million from $179.4 million in the comparable quarter last year. Nevertheless, the revenue was well above analysts' estimate of $155.99 million.
During the quarter, the company's net revenue from service providers was about 25% of total net revenue, compared to 18% in the third quarter of 2008 and 30% in the second quarter of 2009.
The quarterly revenue from NETGEAR's North American business, which accounted for 44% of net revenue, improved 2% to $75.4 million, revenue from Europe, the Middle East and Africa or EMEA, which made up 42% of net revenue, decreased 11% to $72.6 million, while revenue from Asia-Pacific, which accounted for 14% of net revenue, decreased 4% to $23 million. During a conference call held shortly after the release of the results, the company said that the end user demand for its products in North America and Asia Pacific markets is on the rise with signs of stabilization in Europe.
The company's total non-GAAP operating expenses for the quarter declined 11% to $39 million, thanks to cost reduction initiative implemented early this year. The cost reduction strategy was put into action in January with the aim of reducing operating expenses by $10 million in 2009. Through the first nine months of 2009, the company has reduced its operating expenses by $8.8 million and it remains well on track to achieve its target of reducing operating expenses by $10 million by the year-end.
On a non-GAAP basis, operating margin was 10.6% in the third quarter of 2009, compared to 11.1% in the third quarter of 2008, and 3.7% in the second quarter of 2009.
The company set a new record in product launches in a single quarter by launching 21 new products in the third quarter of 2009 and for the fourth-quarter intends to roll out another 15-20 new products.
The net inventory at the end of the most-recent quarter was $73.9 million, compared to $125.7 million at the end of the third quarter of 2008, and $75.0 million at the end of the second quarter of 2009.
NETGEAR's SMB (small and medium-sized business) demand improved with quarter-over-quarter growth across all geographic regions. On the SMB front, NETGEAR introduced the 12-Bay Super Performance Rackmount ReadyNAS capable of storing up to 12TB of secured data; and a full line of ProSecure security appliances ranging from UTMs for up to 25 users and Content Threat Managers for up to 600 users. The company also introduced breakthrough products such as the new DOCSIS 3.0 cable and revolutionary "configurable" unmanaged switches. Looking ahead, the company expects to continue to grow and gain market share in the U.S., Asia Pacific and other emerging markets, helped by continued revenue expansion in new categories such as consumer and high end network storage, DOCSIS 3.0 cable gateways, and security appliances.
The company remains optimistic of returning to year-on-year revenue growth in the fourth-quarter. For the fourth-quarter, NETGEAR foresees net revenue in the range of about $170 million to $180 million and non-GAAP operating margin to be in the range of 7% to 9%. That compares with net revenue of $161.4 million and non-GAAP operating margin of 5.6% in the fourth-quarter of 2008.
NTGR, which has traded in the range of $8.21- $19.74 over the past twelve months, closed Thursday's trading at $18.26, up 3.99%. In after-hours, the stock gained 9.53% and was at $20.
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