Netgear, Inc. (NASDAQ: NTGR) reported Q2 EPS of $0.66, $0.05 worse than the analyst estimate of $0.71. Revenue for the quarter came in at $390 million versus the consensus estimate of $314.84 million.

Patrick Lo, Chairman and Chief Executive Officer of NETGEAR, commented, “Second quarter revenue came in at $308.8 million, representing 10.3% topline growth year over year. Worldwide supply chain constraints, however, such as component shortages, increased freight costs and transit times, and factory closures due to COVID-19, led to a perfect storm of factors that held back our revenue number and saw us fall short of our operating margin goals. As we continue to navigate through this rapidly changing environment, our long-term thesis that premium WiFi will drive the growth of the consumer networking market and our service subscriber base remains intact. With vaccination rates rising and businesses reopening, work from anywhere and hybrid work models are here to stay and we anticipate that the U.S. consumer networking market will grow 20% above pre-pandemic levels in the second half of this year. Meanwhile, demand for our SMB products rebounded strongly in the second quarter as businesses reopened post-COVID. Despite supply constraints, SMB net revenue grew approximately 58% year over year.”

Mr. Lo continued, “We continue to regain market share in the U.S. consumer WiFi market, adding three points to end the quarter at 46%. In addition, we added 33,000 subscribers in the quarter and remain confident in our ability to achieve our goal of 650,000 subscribers by the end of the year. We also launched our smart parental controls service on select Nighthawk WiFi routers in Q2, with plans to roll it out across our WiFi 6 Orbi line in the third quarter. These are important milestones as we build our recurring subscription services business. Finally, I’m delighted to welcome David Henry to the NETGEAR Board of Directors and would like to congratulate him on his promotion to President and General Manager of Connected Home Products and Services.”

Bryan Murray, Chief Financial Officer of NETGEAR, added, “During the second quarter of 2021, we repurchased approximately 654,000 shares of common stock for $25.0 million. With a meaningful portion of our targeted inventory position established, we plan to continue to opportunistically repurchase shares in future quarters.”

GUIDANCE:

Mr. Murray continued, “With hindsight, the first half of 2021 saw the U.S. consumer networking market grow 40% over the same period in 2019. While a very strong showing, this turned out to be 10% below our expectations. As such, we plan to proactively work with our channel partners to optimize their inventory levels in the third quarter. Looking ahead to the second half of 2021, we expect the market growth to moderate further to approximately 20% above second half 2019 levels. We also expect SMB to continue to be supply-bound, and thus expect our third quarter net revenue to be in the range of $285 million to $300 million. With reduced leverage from our topline, our GAAP operating margin for the third quarter is expected to be in the range of 2.1% to 3.1%, and non-GAAP operating margin is expected to be in the range of 5.0% to 6.0%. Our GAAP tax rate is expected to be approximately 27.5%, and our non-GAAP tax rate is expected to be 24.5% for the third quarter of 2021. While we are confident in our ability to provide guidance at this time, we do so with the caveat that, while conditions are improving, considerable uncertainty remains in the market due to the COVID-19 pandemic and, should unforeseen events occur, in particular challenges related to closure of our manufacturing partners operations or transportation delays into any of our regional distribution centers, our actual results could differ from the foregoing guidance.”

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