July 23, 2015

NETGEAR® REPORTS SECOND QUARTER 2015 RESULTS

  • Second quarter 2015 net revenue of $288.8 million, as compared to $337.6 million in the comparable prior year quarter, decrease of 14.5%.
  • Second quarter 2015 GAAP net income of $3.7 million, as compared to $14.7 million in the comparable prior year quarter.
    • Second quarter 2015 non-GAAP net income of $9.9 million, as compared to $21.4 million in the comparable prior year quarter.
  • Second quarter 2015 GAAP net income per diluted share of $0.11, as compared to $0.40 in the comparable prior year quarter.
    • Second quarter 2015 non-GAAP net income per diluted share of $0.29, as compared to $0.58 in the comparable prior year quarter.
  • Company expects third quarter 2015 net revenue to be in the range of $315 million to $330 million, with non-GAAP operating margin in the range of 8.5% to 9.5%. Additionally the Company expects non-GAAP tax expense to be in the range of $11 million to $13 million, an implied effective tax rate of approximately 41%.
  • Board authorizes incremental repurchase of up to 3,000,000 shares.

    SAN JOSE, California - July 23, 2015 - NETGEAR, Inc. (NASDAQ: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the second quarter ended June 28, 2015.

    Net revenue for the second quarter ended June 28, 2015 was $288.8 million, as compared to $337.6 million in the second quarter ended June 29, 2014, and $309.2 million in the first quarter ended March 29, 2015. Net income, computed in accordance with GAAP, for the second quarter of 2015 was $3.7 million, or $0.11 net income per diluted share. This compared to GAAP net income of $14.7 million, or $0.40 net income per diluted share, in the second quarter of 2014, and GAAP net income of $8.0 million, or $0.23 net income per diluted share, in the first quarter of 2015. Non-GAAP net income was $0.29 per diluted share in the second quarter of 2015, as compared to non-GAAP net income of $0.58 per diluted share in the second quarter of 2014 and $0.46 per diluted share in the first quarter of 2015.

    Operating margin, computed in accordance with GAAP, for the second quarter of 2015 was 3.9%, as compared to 7.3% in the year ago comparable quarter, and 5.7% in the first quarter of 2015. Non-GAAP operating margin was 7.1% in the second quarter of 2015, as compared to 10.1% in the second quarter of 2014 and 9.2% in the first quarter of 2015.

    The differences between GAAP and non-GAAP financial measures include adjustments, net of any tax effect, for amortization of intangibles, stock-based compensation expense, restructuring and other charges, acquisition-related expense, losses on inventory commitments due to restructuring and litigation reserves, net. 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 financial results for the second quarter of 2015 show meaningful sequential growth in the Retail Business Unit, despite what is typically a seasonally down quarter. In particular, RBU's performance during the quarter was driven by our Arlo smart home security camera and our premium line of Nighthawk routers and gateways. The growth we are seeing in these two product lines has surpassed our expectations, and forms the cornerstone of our retail business going forward. This is the beginning of the age of the connected smart home, one in which we believe we will play a central role. We feel that the growth of WiFi connected devices in the home will be exponential over the next five to ten years, and we are committed to being a market leader in this space."

    Mr. Lo added, "During the quarter we also continued to manage through the previously announced restructuring of the Service Provider Business Unit, which is substantially close to completion. Meanwhile, the strengthening U.S. dollar has continued to challenge EMEA results, particularly for the Commercial Business Unit."

    Christine Gorjanc, Chief Financial Officer of NETGEAR, added, "During the second quarter of 2015, we continued to leverage the strength of our balance sheet and cash position by repurchasing approximately 2.5 million shares of NETGEAR common stock for $76.2 million, at an average price of $30.90 per share. Since the start of our recent repurchase activity in Q4 2013, we have repurchased approximately 7.6 million shares, or approximately 19% of the fully diluted share count at the beginning of that period. We continue to believe that stock repurchases are an effective way of returning capital to shareholders, and plan to be opportunistic buyers of our stock in the coming quarters."

    Additionally, the Company announced that its Board of Directors has authorized a program to repurchase up to 3,000,000 shares of the Company's common stock, or approximately 9.3% of the outstanding shares at the end of the second quarter. This is incremental to the approximately 266,000 shares that remained under the Company's previous share repurchase program at the end of the second quarter. The stock repurchase authorization does not have an expiration date and the pace of repurchase activity will depend on factors such as levels of cash generation from operations, cash requirements for acquisitions, current stock price, and other factors. Under the program, NETGEAR may repurchase shares from time to time on the open market. The company will finance the repurchase program with available cash on hand. The stock repurchase program may be modified or discontinued at any time.

    Mr. Lo continued, "Looking forward, we expect third quarter net revenue to be in the range of $315 million to $330 million, driven by typical back-to-school seasonality and the success of our latest products. Non-GAAP operating margin is expected to be in the range of 8.5% to 9.5%. Our non-GAAP tax expense is expected to be approximately $11 million to $13 million, which implies an effective tax rate of 41% for the third quarter of 2015."

    Investor Conference Call / Webcast Details
    NETGEAR will review the second quarter results and discuss management's expectations for the third quarter of 2015 today, Thursday, July 23, 2015 at 5 p.m. ET (2 p.m. PT). 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 ET (9 p.m. PT) on Thursday, July 30, 2015 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com. The account number to access the phone replay is 13614402.

    About NETGEAR, Inc.
    NETGEAR (NASDAQ: NTGR) is a global networking company that delivers innovative products to consumers, businesses and service providers. The Company's products are built on a variety of proven technologies such as wireless, Ethernet and powerline, with a focus on reliability and ease-of-use. The product line consists of wired and wireless devices that enable networking, broadband access and network connectivity. These products are available in multiple configurations to address the needs of the end-users in each geographic region in which the Company's products are sold. NETGEAR products are sold in approximately 39,000 retail locations around the globe, and through approximately 31,000 value-added resellers. The company's headquarters are in San Jose, Calif., with additional offices in approximately 25 countries. 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.

    © 2015 NETGEAR, Inc. NETGEAR 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, distribution, sales momentum and market acceptance of recent and anticipated new product introductions that position the Company for growth; expectations regarding the timing and impact of restructuring activities; expectations regarding seasonal changes in the Company's business unit performance; and expectations regarding repurchases of the Company's common stock. 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, including potential repurchases of the Company's common stock; 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 39 through 59, in the Company's quarterly report on Form 10-Q for the fiscal quarter ended March 29, 2015, filed with the Securities and Exchange Commission on May 1, 2015. 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 adjustments, 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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