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NETGEAR (NTGR) Tops Q3 Earnings Estimates on Record Revenues


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NETGEAR, Inc. NTGR reported healthy financial results in third-quarter 2018, driven by the success of Orbi, cable modems and gateways, SMB switches and the Arlo business.

Net Income

On GAAP basis, net income for the third quarter was $9.9 million or 30 cents per share compared with $20.8 million or 64 cents per share in the year-ago quarter. The year-over-year decline was primarily due to higher operating expenses.

Non-GAAP net income came in at $24.9 million or 76 cents per share compared with $26.2 million or 81 cents per share in the prior-year quarter, beating the Zacks Consensus Estimate of 47 cents.

NETGEAR, Inc. Price, Consensus and EPS Surprise

NETGEAR, Inc. Price, Consensus and EPS Surprise | NETGEAR, Inc. Quote

Revenues

The company generated record quarterly net revenues of $400.6 million, up 12.7% year over year owing to growth across all three segments. The figure surpassed the Zacks Consensus Estimate of $389 million.

Geographically, the company's net revenues reflect its strength in North America. Net revenues for the Americas were $288.8 million or 72.1% of net revenues, up 18.2% year over year. EMEA net revenues were $64.9 million or 16.2% of net revenues, up 4.4%. APAC net revenues were $46.9 million or 11.7% of net revenues, down 4.2%, primarily due to decline in Australian service provider revenues in anticipation of the upcoming introduction of 5G.

Operating Metrics

Gross margin improved to 31% from 29% in the year-ago quarter. Quarterly total operating expenses were $114.6 million, up 47.5%. Operating margin was 2.4% compared with 7.1% a year ago.

Segmental Performance

Net revenues from Arlo increased 18.8% year over year to $131.2 million driven by sales growth of Arlo Pro 2 - the latest generation of the company's battery-operated, weather-resistant, Wi-Fi cameras.

The Connected Home segment, which includes Nighthawk, Orbi, Nighthawk Pro Gaming and Neo brands, generated net revenues of $194.7 million, up 6.3% year over year. The improvement was primarily driven by growth in both Orbi Mesh Wi-Fi product and the company's lineup of cable modems and gateways.

Net revenues from the SMB segment increased 20.7% year over year to $74.7 million driven by NETGEAR's strength in switching portfolio. 

Cash Flow and Balance Sheet

During the third quarter, NETGEAR generated $33.8 million of cash from operations. As of Sep 30, 2018, the company had $393.6 million of cash and cash equivalents with $282.4 million of other accrued current liabilities.

Guidance

For fourth-quarter 2018, NETGEAR's management expects net revenues between $430 million and $445 million. Non-GAAP operating margin is projected to be in the range of 2.5-3.5%, which includes approximately $21 million of costs associated with the separation of Arlo and dis-synergies created as the company hires talent to duplicate certain roles. While GAAP tax rate is expected to be approximately 85%, non-GAAP tax rate is expected to be around 22%.

Looking Forward

NETGEAR is the majority owner of Arlo Technologies, which completed its IPO during the third quarter. The company continues to capitalize on technology inflections, create new categories and build recurring service revenues in order to maintain its market leadership position and drive future growth. We remain impressed with the solid growth potential of the company.

Zacks Rank and Stocks to Consider

NETGEAR currently has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the broader industry include NetScout Systems, Inc. NTCT , Comtech Telecommunications Corp. CMTL and Ubiquiti Networks, Inc. UBNT , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

NetScout, Comtech and Ubiquiti have a long-term earnings growth expectation of 10%, 5% and 18.6%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: NTCT , NTGR , CMTL , UBNT



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