October 24, 2013

NETGEAR® REPORTS THIRD QUARTER RESULTS

  • 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%

SAN JOSE, California - October 24, 2013 - NETGEAR, Inc. (NASDAQGS: 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 (NASDAQGS: 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.

Contact:
NETGEAR Investor Relations
Christopher Genualdi
netgearIR@netgear.com
(408) 890-3520

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-


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