NETGEAR® Reports Record Third Quarter 2011 Results

SAN JOSE, Calif., Oct. 27, 2011 /PRNewswire/ --

• Record third quarter 2011 net revenue of $301.8 million, as compared to $236.0 million in the comparable prior year quarter, 28% year-over-year growth
• Third quarter 2011 non-GAAP net income of $29.9 million, as compared to $16.1 million in the comparable prior year quarter, 86% year-over-year growth
• Third quarter 2011 non-GAAP diluted earnings per share of $0.79, as compared to $0.45 in the comparable prior year quarter, 76% year-over-year growth
• Company expects fourth quarter 2011 net revenue to be in the range of $300 million to $310 million, with non-GAAP operating margin in the range of 11% to 12%

NETGEAR, Inc. (NASDAQGM: NTGR),  a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the third quarter ended October 2, 2011.

Net revenue for the third quarter ended October 2, 2011 was $301.8 million, as compared to $236.0 million for the third quarter ended October 3, 2010, and as compared to $291.2 million in the second quarter ended July 3, 2011.  Net income, computed in accordance with GAAP, for the third quarter of 2011 was $26.7 million, or $0.70 per diluted share.  This compared to GAAP net income of $13.1 million, or $0.36 per diluted share, for the third quarter of 2010, and to GAAP net income of $20.6 million, or $0.54 per diluted share, in the second quarter of 2011.  

Gross margin on a non-GAAP basis in the third quarter of 2011 was 32.4%, as compared to 32.7% in the year ago comparable quarter, and 31.7% in the second quarter of 2011.  Non-GAAP operating margin was 12.5% in the third quarter of 2011, as compared to 11.0% in the third quarter of 2010, and 11.9% in the second quarter of 2011. Non-GAAP net income was $0.79 per diluted share in the third quarter of 2011, as compared to non-GAAP net income of $0.45 per diluted share in the third quarter of 2010, and non-GAAP net income of $0.65 per diluted share in the second quarter of 2011.  

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 charges, acquisition related compensation and transitional expenses, impact to cost of sales from acquisition accounting adjustments to inventory, 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, "We are extremely pleased with our Q3 2011 financial performance amid a challenging macroeconomic environment.  Despite the uncertainty in Europe, we were able to achieve record revenue, profit and EPS, based on our strength in new product innovation and distribution.   We are particularly pleased with our 9% sequential revenue growth in Europe and our double digit sequential revenue growth worldwide in our Retail and Commercial businesses.   Our European retail consumer business was led by an uptake in home networking products, following the trend in the U.S., as more tablets and WiFi enabled devices are being used at home. Our strength in the commercial business was led by the strong market reception of our switches with 10 Gigabit or Power over Ethernet capabilities, and our innovative Plus switches which are manageable via simple PC utility software."

"Our Retail Business Unit revenue was up 18% sequentially, and up 10% over the prior year quarter, while the Commercial Business Unit revenue was up 18% sequentially, and up 21% over the prior year quarter. As expected, the Service Provider Business Unit revenue was down 21% sequentially, reflective of a one-time order from a major service provider in the previous quarter. On a year-over-year basis, service provider revenue was up 85%."

"We introduced another 22 new exciting products in the third quarter 2011 as we continue to build on our new product momentum.  Notable new products include: the industry's first 900 Megabits per second WiFi router; the new WiFi router with ReadySHARE® Cloud storage which enables smartphone access to content stored on USB drives at home; the NETGEAR NeoTV™ Player which streams Netflix, Vudu, YouTube and many other online content sources to TVs; the Universal Push2TV® which transposes any laptop screen display wirelessly to a TV; the NETGEAR ProSecure® UTM9S, the industry's first Unified Threat Management (UTM) gateway with both vDSL and WiFi capability, and the 52 port high density Power over Ethernet Smart switch."

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "We ended the third quarter of 2011 with $321.1 million in cash, cash equivalents and short-term investments driven by a record quarter of cash flow from operations of $43.2 million.   Our net inventory ended at $136.0 million, with 6.0 turns, and DSO's of 66 days in the third quarter 2011 remained at the low end of our historical range of 65 to 75 days. Additionally, our tax rate in the third quarter 2011 reflects a one-time benefit which accounts for an incremental $0.09 per diluted share of earnings."  

Looking forward, Mr. Lo added, "Our success through turbulent economic times has been driven by product innovation and we will continue to focus on new product introductions in the fourth quarter 2011 with another 20 new products expected. We are cautiously optimistic on holiday sales in both North America and Europe.  Specifically, for the fourth quarter of 2011, we expect net revenue in the range of approximately $300 million to $310 million, with non-GAAP operating margin to be in the range of 11% to 12%."

Investor Conference Call / Webcast Details

NETGEAR will review the third quarter 2011 results and discuss management's expectations for the fourth quarter of 2011 today, Thursday, October 27, 2011 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 EDT (9 p.m. PDT) on Thursday, November 3, 2011 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com.  The account number to access the phone replay is 380966.

About NETGEAR, Inc.

NETGEAR (NASDAQGM: 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 27,500 retail locations around the globe, and through more than 37,000 value-added resellers. The company's headquarters are in San Jose, Calif., with additional offices in 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.

© 2011 NETGEAR, Inc. NETGEAR, the NETGEAR logo, ReadySHARE, NeoTV, Push2TV and ProSecure are trademarks or registered trademarks of NETGEAR, Inc. 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, among others, regarding NETGEAR's expected revenue and operating margin , our ability and intent to launch new product offerings and continue product development efforts, current and future demand for the Company's existing and anticipated new products, our outlook for holiday sales for the 2011 holiday season, and our expectation of an increase in revenue for the fourth quarter of 2011. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including, without limitation, 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; channel inventory information reported is estimated based on the average number of weeks of inventory on hand on the last Saturday of the quarter, as reported by certain of NETGEAR's customers; 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 46 through 63, in the Company's Quarterly Report on Form 10-Q for the quarter ended July 3, 2011, filed with the Securities and Exchange Commission on August 9, 2011. 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-

SOURCE NETGEAR, Inc.