NETGEAR(R) Reports Third Quarter Results

SAN JOSE, CA--(Marketwired - Oct 24, 2013) - NETGEAR, Inc. (NASDAQ: NTGR)

Third quarter 2013 net revenue of $361.9 million, as compared to $315.2 million in the comparable prior year quarter, increase of 14.8% year-over-year
Third quarter 2013 non-GAAP net income of $22.9 million, as compared to $25.3 million in the comparable prior year quarter, decrease of 9.4% year-over-year
Third quarter 2013 non-GAAP diluted earnings per share of $0.58, as compared to $0.65 in the comparable prior year quarter, decrease of 10.8% year-over-year
Company expects fourth quarter 2013 net revenue to be in the range of $340 million to $355 million, with non-GAAP operating margin in the range of 9.5% to 10.5%

NETGEAR, Inc. (NASDAQ: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the third quarter ended September 29, 2013.

Net revenue for the third quarter ended September 29, 2013 was $361.9 million, as compared to $315.2 million for the third quarter ended September 30, 2012, and $357.7 million in the second quarter ended June 30, 2013. The second and third quarter 2013 results reflect the full quarter effect of the AirCard business acquired from Sierra Wireless at the beginning of the second quarter of 2013. Net income, computed in accordance with GAAP, for the third quarter of 2013 was $14.5 million, or $0.37 per diluted share. This compared to GAAP net income of $23.8 million, or $0.61 per diluted share, for the third quarter of 2012, and GAAP net income of $14.0 million, or $0.36 per diluted share, in the second quarter of 2013.

Gross margin on a non-GAAP basis in the third quarter of 2013 was 28.9%, as compared to 31.6% in the year ago comparable quarter, and 29.8% in the second quarter of 2013. Non-GAAP operating margin was 9.9% in the third quarter of 2013, as compared to 11.5% in the third quarter of 2012, and 10.3% in the second quarter of 2013. Non-GAAP net income was $0.58 per diluted share in the third quarter of 2013, as compared to non-GAAP net income of $0.65 per diluted share in the third quarter of 2012, and non-GAAP net income of $0.62 per diluted share in the second quarter of 2013. The third quarter 2012 non-GAAP tax rate included a one-time tax rate benefit, which accounted for an incremental $0.05 per diluted share of earnings, which did not occur in the third quarter of 2013. The Company's non-GAAP tax rate was 37.2% in the third quarter 2013, as compared to 30.3% in the third quarter of 2012, and 32.9% in the second quarter of 2013.

The differences between GAAP and non-GAAP financial measures include adjustments, net of any tax effect, for amortization of purchased intangibles, stock-based compensation, restructuring and other charges, acquisition related expense, impact to cost of sales from acquisition accounting adjustments to inventory, gain on sale of cost method investment, impairment charges, and litigation reserves. The accompanying schedules provide a reconciliation of financial measures computed on a GAAP basis to financial measures computed on a non-GAAP basis.

Patrick Lo, Chairman and Chief Executive Officer of NETGEAR commented, "Our Retail Business Unit had a successful back-to-school season and continued to take advantage of the 802.11ac upgrade cycle. Our Service Provider Business Unit performed well during the quarter exceeding initial forecast. Our Commercial Business Unit performed below expectations as demand for our storage products was weaker than expected during the quarter. However, we recently introduced additional products in this category, which we believe will strengthen our position in the market."

"We are looking forward to some exciting new product introductions in the fourth quarter. We just introduced the world's fastest 802.11ac router, the Nighthawk. The market excitement generated to date is the highest in NETGEAR history. We believe such ground breaking WiFi routers will help continue to increase our market share. We also recently introduced two high performance rack mount ReadyNAS storage products and an iPhone App for mobile access to ReadyNAS. We believe these new introductions will continue to strengthen our market position in the storage area. We believe leading edge products that satisfy customers' needs better than our competition is what has made us successful in the past and will propel our growth in the future."

Christine Gorjanc, Chief Financial Officer of NETGEAR, added, "Non-GAAP gross margin for the third quarter was down as compared to the comparable prior year quarter, due to the revenue mix being weighted more toward service provider. Looking forward, we have limited visibility driven by the lumpy nature of the service provider business and continued economic headwinds in Europe negatively affecting end-market demand. As such, we are expecting fourth quarter 2013 revenue to be in the range of approximately $340 million to $355 million and operating margin in the range of 9.5% to 10.5%. Additionally, during the fourth quarter we expect to incur a restructuring charge between $3 and $4 million dollars, as we will be realigning resources to better focus on the key growth markets we are pursuing."

Investor Conference Call / Webcast Details
NETGEAR will review the third quarter results and discuss management's expectations for the third quarter of 2013 today, Thursday, October 24, 2013 at 5 p.m. EDT (2 p.m. PDT). The dial-in number for the live audio call is (201) 689-8471. A live webcast of the conference call will be available on NETGEAR's website at http://investor.netgear.com. A replay of the call will be available 2 hours following the call through midnight Eastern (9 p.m. Pacific) on Thursday, October 31, 2013 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com. The account number to access the phone replay is 10000607.

About NETGEAR, Inc.
NETGEAR (NASDAQ: NTGR) is a global networking company that delivers innovative products to consumers, businesses and service providers. For consumers, the company makes high performance, dependable and easy to use home networking, storage and digital media products to connect people with the Internet and their content and devices. For businesses, NETGEAR provides networking, storage and security solutions without the cost and complexity of Big IT. The company also supplies top service providers with retail proven, whole home solutions for their customers. NETGEAR products are built on a variety of proven technologies such as wireless, Ethernet and powerline, with a focus on reliability and ease-of-use. NETGEAR products are sold in approximately 45,000 retail locations around the globe, and through approximately 39,000 value-added resellers. The company's headquarters are in San Jose, Calif., with additional offices in over 25 countries. NETGEAR is an ENERGY STAR partner. More information is available at http://investor.netgear.com or by calling (408) 907-8000. Connect with NETGEAR at http://twitter.com/NETGEAR and http://www.facebook.com/NETGEAR.

© 2013 NETGEAR, Inc. NETGEAR, ReadyNAS, AirCard, Nighthawk and the NETGEAR logo are trademarks or registered trademarks of NETGEAR, Inc. and its affiliates in the United States and/or other countries. Other brand and product names are trademarks or registered trademarks of their respective holders. The information contained herein is subject to change without notice. NETGEAR shall not be liable for technical or editorial errors or omissions contained herein. All rights reserved.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 for NETGEAR, Inc.:
This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words "anticipate," "expect," "believe," "will," "may," "should," "estimate," "project," "outlook," "forecast" or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent NETGEAR, Inc.'s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding: expected net revenue and non-GAAP operating margin; expectations regarding the timing and market acceptance of recent and anticipated new product introductions that position the Company for growth; expectations regarding market share gains in various product categories; estimates of sales data and market demand for the Company's new products; the ability of the Company's products to satisfy customers' needs better than competing products; and the timing and magnitude of restructuring charges. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: future demand for the Company's products may be lower than anticipated; consumers may choose not to adopt the Company's new product offerings or adopt competing products; product performance may be adversely affected by real world operating conditions; the Company may be unsuccessful or experience delays in manufacturing and distributing its new and existing products; telecommunications service providers may choose to slow their deployment of the Company's products or utilize competing products; the Company may be unable to collect receivables as they become due; the Company may fail to manage costs, including the cost of developing new products and manufacturing and distribution of its existing offerings; the Company may fail to successfully continue to effect operating expense savings; changes in the level of NETGEAR's cash resources and the Company's planned usage of such resources; changes in the Company's stock price and developments in the business that could increase the Company's cash needs; fluctuations in foreign exchange rates; and the actions and financial health of the Company's customers. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect NETGEAR and its business are detailed in the Company's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled "Part II - Item 1A. Risk Factors," pages 52 through 73, in the Company's quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2013, filed with the Securities and Exchange Commission on August 6, 2013. NETGEAR undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Use of Non-GAAP Financial Information:
To supplement our consolidated financial statements presented on a GAAP basis, NETGEAR uses non-GAAP financial measures, which are adjusted to exclude certain expenses and tax benefits, where applicable. We believe non-GAAP financial measures are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of NETGEAR's underlying operational results and trends and our marketplace performance. For example, the non-GAAP results are an indication of our baseline performance before charges that are considered by management to be outside of our core operating results. In addition, these adjusted non-GAAP results are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial measures prepared in accordance with generally accepted accounting principles in the United States.

-Financial Tables Attached-



NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

			September 29, 2013			December 31, 2012

ASSETS
Current assets:
	Cash and cash equivalents		$	160,484		$	149,032
	Short-term investments			140,934			227,845
	Accounts receivable, net			269,964			256,014
	Inventories			211,275			174,903
	Deferred income taxes			25,455			22,691
	Prepaid expenses and other current assets			38,477			33,724
		Total current assets		846,589			864,209
Property and equipment, net				25,450			19,025
Intangibles, net				88,631			27,621
Goodwill				155,916			100,880
Other non-current assets				24,608			22,834
		Total assets	$	1,141,194		$	1,034,569

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	119,273		$	87,310
	Accrued employee compensation			17,185			18,338
	Other accrued liabilities			136,707			126,255
	Deferred revenue			26,225			27,645
	Income taxes payable			3,541			1,382
		Total current liabilities		302,931			260,930
Non-current income taxes payable				13,314			13,735
Other non-current liabilities				6,366			5,293
		Total liabilities		322,611			279,958
Stockholders' equity:
	Common stock			39			38
	Additional paid-in capital			415,254			394,427
	Cumulative other comprehensive income			(151	)		4
	Retained earnings			403,441			360,142
		Total stockholders' equity		818,583			754,611
		Total liabilities and stockholders' equity	$	1,141,194		$	1,034,569



NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)


			Three Months Ended							Nine Months Ended
			September 29, 2013		June 30, 2013			September 30, 2012		September 29, 2013		September 30, 2012

Net revenue			$	361,895	$	357,719		$	315,210	$	1,013,013	$	961,485
Cost of revenue				260,236		254,289			217,522		720,187		669,310
Gross profit				101,659		103,430			97,688		292,826		292,175
Operating expenses:
	Research and development			23,320		23,981			17,399		62,639		46,277
	Sales and marketing			39,465		40,406			37,600		116,260		114,247
	General and administrative			11,930		12,319			11,888		36,576		33,520
	Restructuring and other charges			400		1,587			--		1,957		--
	Litigation reserves, net			305		3,555			269		3,908		420
	Impairment charges			2,000		--			--		2,000		--
		Total operating expenses		77,420		81,848			67,156		223,340		194,464
Income from operations				24,239		21,582			30,532		69,486		97,711
Interest income				71		95			109		315		344
Other income (expense), net				511		(548	)		3,070		37		2,823
Income before income taxes				24,821		21,129			33,711		69,838		100,878
Provision for income taxes				10,364		7,144			9,920		26,053		30,418
Net income			$	14,457	$	13,985		$	23,791	$	43,785	$	70,460

Net income per share:
	Basic		$	0.37	$	0.36		$	0.62	$	1.14	$	1.86
	Diluted		$	0.37	$	0.36		$	0.61	$	1.12	$	1.82

Weighted average shares outstanding used to compute net income per share:
	Basic			38,700		38,539			38,162		38,562		37,978
	Diluted			39,198		39,074			38,802		39,127		38,682

NETGEAR, INC.

NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Excluding amortization of purchased intangibles, stock-based compensation, restructuring and other charges, acquisition related expense, impact to cost of sales from acquisition accounting adjustments to inventory, gain on sale of cost method investment, impairment charges, and litigation reserves, net of tax.

(In thousands, except per share data)

(Unaudited)

			Three Months Ended								Nine Months Ended
			September 29, 2013		June 30, 2013			September 30, 2012			September 29, 2013		September 30, 2012

Net revenue			$	361,895	$	357,719		$	315,210		$	1,013,013	$	961,485
Cost of revenue				257,343		251,061			215,695			712,406		664,972
Gross profit				104,552		106,658			99,515			300,607		296,513

Operating expenses:
	Research and development			22,273		22,846			16,621			59,785		44,211
	Sales and marketing			36,109		36,478			36,362			107,746		110,624
	General and administrative			10,276		10,565			10,358			30,959		29,424
		Total operating expenses		68,658		69,889			63,341			198,490		184,259
Income from operations				35,894		36,769			36,174			102,117		112,254
Interest income				71		95			109			315		344
Other income (expense), net				511		(548	)		(56	)		37		(303	)
Income before income taxes				36,476		36,316			36,227			102,469		112,295
Provision for income taxes				13,584		11,944			10,959			35,791		34,315
Net income			$	22,892	$	24,372		$	25,268		$	66,678	$	77,980

Net income per share:
	Basic		$	0.59	$	0.63		$	0.66		$	1.73	$	2.05
	Diluted		$	0.58	$	0.62		$	0.65		$	1.70	$	2.02

Weighted average shares outstanding used to compute net income per share:
	Basic			38,700		38,539			38,162			38,562		37,978
	Diluted			39,198		39,074			38,802			39,127		38,682



NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except per share data)
(Unaudited)


STATEMENT OF OPERATIONS DATA:

		Three Months Ended									Nine Months Ended
		September 29, 2013			June 30, 2013			September 30, 2012			September 29, 2013			September 30, 2012

GAAP gross profit		$	101,659		$	103,430		$	97,688		$	292,826		$	292,175
	Amortization of intangible assets		2,414			2,254			1,354			6,139			3,317
	Stock-based compensation expense		479			406			473			1,074			1,021
	Impact to cost of sales from acquisition accounting adjustments to inventory		--			568			--			568			--
Non-GAAP gross profit		$	104,552		$	106,658		$	99,515		$	300,607		$	296,513
Non-GAAP gross margin			28.9	%		29.8	%		31.6	%		29.7	%		30.8	%

GAAP research and development		$	23,320		$	23,981		$	17,399		$	62,639		$	46,277
	Stock-based compensation expense		(1,047	)		(1,135	)		(778	)		(2,854	)		(2,066	)
Non-GAAP research and development		$	22,273		$	22,846		$	16,621		$	59,785		$	44,211

GAAP sales and marketing		$	39,465		$	40,406		$	37,600		$	116,260		$	114,247
	Amortization of intangible assets		(2,025	)		(2,618	)		--			(4,643	)		--
	Stock-based compensation expense		(1,331	)		(1,310	)		(1,238	)		(3,871	)		(3,623	)
Non-GAAP sales and marketing		$	36,109		$	36,478		$	36,362		$	107,746		$	110,624

GAAP general and administrative		$	11,930		$	12,319		$	11,888		$	36,576		$	33,520
	Stock-based compensation expense		(1,654	)		(1,540	)		(1,530	)		(4,693	)		(4,096	)
	Acquisition related expense		--			(214	)		--			(924	)		--
Non-GAAP general and administrative		$	10,276		$	10,565		$	10,358		$	30,959		$	29,424

GAAP total operating expenses		$	77,420		$	81,848		$	67,156		$	223,340		$	194,464
	Amortization of intangible assets		(2,025	)		(2,618	)		--			(4,643	)		--
	Stock-based compensation expense		(4,032	)		(3,985	)		(3,546	)		(11,418	)		(9,785	)
	Restructuring and other charges		(400	)		(1,587	)		--			(1,957	)		--
	Acquisition related expense		--			(214	)		--			(924	)		--
	Litigation reserves, net		(305	)		(3,555	)		(269	)		(3,908	)		(420	)
	Impairment charges		(2,000	)		--			--			(2,000	)		--
Non-GAAP total operating expenses		$	68,658		$	69,889		$	63,341		$	198,490		$	184,259



NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
(In thousands, except per share data)
(Unaudited)


STATEMENT OF OPERATIONS DATA (CONTINUED):

		Three Months Ended									Nine Months Ended
		September 29, 2013			June 30, 2013			September 30, 2012			September 29, 2013			September 30, 2012

GAAP operating income		$	24,239		$	21,582		$	30,532		$	69,486		$	97,711
	Amortization of intangible assets		4,439			4,872			1,354			10,782			3,317
	Stock-based compensation expense		4,511			4,391			4,019			12,492			10,806
	Restructuring and other charges		400			1,587			--			1,957			--
	Acquisition related expense		--			214			--			924			--
	Impact to cost of sales from acquisition accounting adjustments to inventory		--			568			--			568			--
	Litigation reserves, net		305			3,555			269			3,908			420
	Impairment charges		2,000			--			--			2,000			--
Non-GAAP operating income		$	35,894		$	36,769		$	36,174		$	102,117		$	112,254
Non-GAAP operating margin			9.9	%		10.3	%		11.5	%		10.1	%		11.7	%

GAAP other income (expense),net		$	511		$	(548	)	$	3,070		$	37		$	2,823
	Gain on sale of cost method investment		--			--			(3,126	)		--			(3,126	)
Non-GAAP other income (expense), net		$	511		$	(548	)	$	(56	)	$	37		$	(303	)

GAAP net income		$	14,457		$	13,985		$	23,791		$	43,785		$	70,460
	Amortization of intangible assets		4,439			4,872			1,354			10,782			3,317
	Stock-based compensation expense		4,511			4,391			4,019			12,492			10,806
	Restructuring and other charges		400			1,587			--			1,957			--
	Acquisition related expense		--			214			--			924			--
	Impact to cost of sales from acquisition accounting adjustments to inventory		--			568			--			568			--
	Litigation reserves, net		305			3,555			269			3,908			420
	Impairment charges		2,000			--			--			2,000			--
	Gain on sale of cost method investment		--			--			(3,126	)		--			(3,126	)
	Tax effect		(3,220	)		(4,800	)		(1,039	)		(9,738	)		(3,897	)
Non-GAAP net income		$	22,892		$	24,372		$	25,268		$	66,678		$	77,980



NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
(In thousands, except per share data)
(Unaudited)


STATEMENT OF OPERATIONS DATA (CONTINUED):

		Three Months Ended									Nine Months Ended
		September 29, 2013			June 30, 2013			September 30, 2012			September 29, 2013			September 30, 2012

NET INCOME PER DILUTED SHARE:
GAAP net income per diluted share		$	0.37		$	0.36		$	0.61		$	1.12		$	1.82
	Amortization of intangible assets		0.11			0.12			0.03			0.28			0.09
	Stock-based compensation expense		0.12			0.11			0.10			0.32			0.28
	Restructuring and other charges		0.01			0.04			--			0.05			--
	Acquisition related expense		--			0.01			--			0.02			--
	Impact to cost of sales from acquisition accounting adjustments to inventory		--			0.01			--			0.01			--
	Litigation reserves, net		0.01			0.09			0.01			0.10			0.01
	Impairment charges		0.05			--			--			0.05			--
	Gain on sale of cost method investment		--			--			(0.08	)		--			(0.08	)
	Tax effect		(0.09	)		(0.12	)		(0.02	)		(0.25	)		(0.10	)
Non-GAAP net income per diluted share		$	0.58		$	0.62		$	0.65		$	1.70		$	2.02



SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory and headcount)
(Unaudited)


		Three Months Ended
		September 29, 2013		June 30, 2013		March 31, 2013		December 31, 2012		September 30, 2012

Cash, cash equivalents and short-term investments		$	301,418	$	288,103	$	422,412	$	376,877	$	362,420
Cash, cash equivalents and short-term investments per diluted share		$	7.69	$	7.37	$	10.82	$	9.68	$	9.34

Accounts receivable, net		$	269,964	$	288,483	$	237,896	$	256,014	$	248,862
Days sales outstanding (DSO)			68		73		73		76		72

Inventories		$	211,275	$	185,383	$	158,555	$	174,903	$	178,916
Ending inventory turns			4.9		5.5		5.2		5.0		4.9

Weeks of channel inventory:
	U.S. retail channel		11.5		10.4		9.9		8.8		9.8
	U.S. distribution channel		9.9		9.0		8.9		10.2		8.4
	EMEA distribution channel		4.5		5.1		4.1		4.4		4.4
	APAC distribution channel		8.2		7.3		7.2		7.2		4.7

Deferred revenue		$	28,049	$	33,717	$	28,961	$	27,645	$	28,205

Headcount			1,100		1,095		866		850		854
Non-GAAP diluted shares			39,198		39,074		39,050		38,924		38,802



NET REVENUE BY GEOGRAPHY
	Three Months Ended												Nine Months Ended
	September 29, 2013				June 30, 2013				September 30, 2012				September 29, 2013				September 30, 2012
Americas	$	220,487	61	%	$	200,848	56	%	$	177,647	56	%	$	578,011	57	%	$	509,440	53	%
EMEA		97,220	27	%		108,367	30	%		104,368	33	%		312,712	31	%		347,264	36	%
APAC		44,188	12	%		48,504	14	%		33,195	11	%		122,290	12	%		104,781	11	%
Total	$	361,895	100	%	$	357,719	100	%	$	315,210	100	%	$	1,013,013	100	%	$	961,485	100	%



NET REVENUE BY SEGMENT
	Three Months Ended												Nine Months Ended
	September 29, 2013				June 30, 2013				September 30, 2012				September 29, 2013				September 30, 2012
Retail	$	130,301	36	%	$	117,395	33	%	$	123,457	39	%	$	374,018	37	%	$	366,258	38	%
Commercial		76,957	21	%		88,446	25	%		79,240	25	%		236,254	23	%		234,498	24	%
Service Provider		154,637	43	%		151,878	42	%		112,513	36	%		402,741	40	%		360,729	38	%
Total	$	361,895	100	%	$	357,719	100	%	$	315,210	100	%	$	1,013,013	100	%	$	961,485	100	%

Contact Information:

Contact:
NETGEAR Investor Relations
Christopher Genualdi

(408) 890-3520