Business Wire | Jul 21, 2021 04:05PM EDT

NETGEAR(r) Reports Second Quarter 2021 Results

Jul. 21, 2021

SAN JOSE, Calif.--(BUSINESS WIRE)--Jul. 21, 2021--NETGEAR, Inc. (NASDAQ: NTGR), a global networking company that delivers innovative networking and Internet connected products to consumers and businesses, today reported financial results for the second quarter ended June 27, 2021.

* Second quarter 2021 net revenue of $308.8 million, an increase of 10.3% from the comparable prior year quarter. * Second quarter 2021 GAAP operating income of $21.5 million, or 7.0% of net revenue, as compared to $8.9 million, or 3.2% of net revenue, in the comparable prior year quarter. Second quarter 2021 non-GAAP operating income of $26.5 million, or 8.6% of net revenue, as compared to $21.0 million, or 7.5% of net revenue, in the comparable prior year quarter. * Second quarter 2021 GAAP net income per diluted share of $0.57, as compared to $0.20 in the comparable prior year quarter. Second quarter 2021 non-GAAP net income per diluted share of $0.66, as compared to $0.54 in the comparable prior year quarter.

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, "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."

Business Outlook

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."

A reconciliation between the Business Outlook on a GAAP and non-GAAP basis is provided in the following table:

Three months ending October 3, 2021

Operating Margin Tax Rate Rate



GAAP 2.1% - 3.1% 27.5%

Estimated adjustments for^1:

Amortization of intangibles 0.1% -

Stock-based compensation expense 2.6% -

Restructuring and other charges 0.2% -

Non-GAAP tax adjustments - (3.0)%

Non-GAAP 5.0% - 6.0% 24.5%

1 Business outlook does not include estimates for any currently unknown income and expense items which, by their nature, could arise late in a quarter, including: litigation reserves, net; acquisition related charges; impairment charges; restructuring and other charges and discrete tax benefits or detriments that cannot be forecasted (e.g., windfalls or shortfalls from equity awards or items related to the resolution of uncertain tax positions). New material income and expense items such as these could have a significant effect on our guidance and future GAAP results.

Investor Conference Call / Webcast Details

NETGEAR will review the second quarter results and discuss management's expectations for the third quarter of 2021 today, Wednesday, July 21, 2021 at 5 p.m. ET (2 p.m. PT). The toll free dial-in number for the live audio call is (844) 709-2008. The international dial-in number for the live audio call is (647) 253-8663. The conference ID for the call is 9796754. A live webcast of the conference call will be available on NETGEAR's Investor Relations website at http://investor.netgear.com. A replay of the call will be available via the web at http://investor.netgear.com.

About NETGEAR, Inc.

For more than 25 years, NETGEAR(r) (NASDAQ: NTGR) has been the innovative leader in connecting the world to the internet with advanced networking technologies for homes, businesses and service providers around the world. As staying connected has become more important than ever, NETGEAR delivers award-winning network solutions for remote work, distance learning, ultra high def streaming, online game play and more. To enable people to collaborate and connect to a world of information and entertainment, NETGEAR is dedicated to providing a range of connected solutions. From ultra-premium Orbi Mesh WiFi systems and high performance Nighthawk routers, to high-speed cable modems and 5G mobile wireless products to cloud-based subscription services for network management and security, to smart networking products and Video over Ethernet for Pro AV applications, NETGEAR keeps you connected. NETGEAR is headquartered in San Jose, California. Learn more on the NETGEAR Investor Page or by calling (408) 907-8000. Connect with NETGEAR: Twitter, Facebook, Instagram, LinkedIn and the NETGEAR blog at NETGEAR.com.

(c) 2021 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.

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: NETGEAR's future operating performance and financial condition, including expectations regarding continued profitability and cash generation; expectations regarding continuing market demand for the Company's products and the Company's ability to respond to this demand; the timing, distribution, sales momentum and market acceptance of recent and anticipated new product introductions that position the Company for growth and market share gain; expectations regarding supply constraints; expectations regarding the ability to participate in promotional activities leading to further market share gains; expectations regarding expected tax rates; and expectations regarding NETGEAR's paid subscriber base growth. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: uncertainty surrounding the duration and impact of the global COVID-19 pandemic, including with respect to the Company's supply chain and potential disruptions in the Company's transportation network, including with respect to the Company's distribution centers; future demand for the Company's products may be lower than anticipated; the Company may be unsuccessful, or experience delays, in manufacturing and distributing its new and existing products; consumers may choose not to adopt the Company's new product offerings or adopt competing products; the Company may be unable to continue to grow its number of registered users, its number of registered app users and/or its paid subscriber base; product performance may be adversely affected by real world operating conditions; the Company may fail to manage costs, including the cost of air freight and ocean freight and the cost of developing new products and manufacturing and distribution of its existing offerings; the Company may fail to successfully manage channel inventory levels; 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, including the Company's ability to collect receivables as they become due. 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" in the Company's quarterly report on Form 10-Q for the fiscal quarter ended March 28, 2021, filed with the Securities and Exchange Commission on April 30, 2021. Given these circumstances, you should not place undue reliance on these forward-looking statements. 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, except as required by law.

Non-GAAP Financial Information:

To supplement our unaudited selected financial data presented on a basis consistent with Generally Accepted Accounting Principles ("GAAP"), we disclose certain non-GAAP financial measures that exclude certain charges, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development, non-GAAP sales and marketing, non-GAAP general and administrative, non-GAAP other operating expenses, net, non-GAAP total operating expenses, non-GAAP operating income, non-GAAP operating margin, non-GAAP other income (expense), net, non-GAAP net income and non-GAAP net income per diluted share. These supplemental measures exclude adjustments for amortization of intangibles, stock-based compensation expense, change in fair value of contingent consideration, restructuring and other charges, litigation reserves, net, gain/loss on investments, net, and adjust for effects related to non-GAAP tax adjustments. These non-GAAP measures are not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies. We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.

In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of our operating performance on a period-to-period basis because such items are not, in our view, related to our ongoing operational performance. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. In addition, management's incentive compensation is determined using certain non-GAAP measures. Since we find these measures to be useful, we believe that investors benefit from seeing results "through the eyes" of management in addition to seeing GAAP results. We believe that these non-GAAP measures, when read in conjunction with our GAAP financials, provide useful information to investors by offering:

* the ability to make more meaningful period-to-period comparisons of our on-going operating results; * the ability to better identify trends in our underlying business and perform related trend analyses; * a better understanding of how management plans and measures our underlying business; and * an easier way to compare our operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures.

The following are explanations of the adjustments that we incorporate into non-GAAP measures, as well as the reasons for excluding them in the reconciliations of these non-GAAP financial measures:

Amortization of intangibles consists primarily of non-cash charges that can be impacted by, among other things, the timing and magnitude of acquisitions. We consider our operating results without these charges when evaluating our ongoing performance and forecasting our earnings trends, and therefore exclude such charges when presenting non-GAAP financial measures. We believe that the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of our competitors.

Stock-based compensation expense consists of non-cash charges for the estimated fair value of stock options, restricted stock units, performance shares and shares under the employee stock purchase plan granted to employees. We believe that the exclusion of these charges provides for more accurate comparisons of our operating results to peer companies due to the varying available valuation methodologies, subjective assumptions and the variety of award types. In addition, we believe it is useful to investors to understand the specific impact stock-based compensation expense has on our operating results.

Other items consist of certain items that are the result of either unique or unplanned events, including, when applicable: change in fair value of contingent consideration, restructuring and other charges, litigation reserves, net, and gain/loss on investments, net. It is difficult to predict the occurrence or estimate the amount or timing of these items in advance. Although these events are reflected in our GAAP financial statements, these unique transactions may limit the comparability of our on-going operations with prior and future periods. The amounts result from events that often arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Therefore, the amounts do not accurately reflect the underlying performance of our continuing business operations for the period in which they are incurred.

Non-GAAP tax adjustments consist of adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure on non-GAAP net income. We also believe providing financial information with and without the income tax effects relating to our non-GAAP financial measures provides our management and users of the financial statements with better clarity regarding the on-going performance of our business.

Source: NETGEAR-F

^1 Business outlook does not include estimates for any currently unknown incomeand expense items which, by their nature, could arise late in a quarter,including: litigation reserves, net; acquisition related charges; impairmentcharges; restructuring and other charges and discrete tax benefits ordetriments that cannot be forecasted (e.g., windfalls or shortfalls from equityawards or items related to the resolution of uncertain tax positions). Newmaterial income and expense items such as these could have a significant effecton our guidance and future GAAP results.



Investor Conference Call / Webcast Details

NETGEAR will review the second quarter results and discuss management's expectations for the third quarter of 2021 today, Wednesday, July 21, 2021 at 5 p.m. ET (2 p.m. PT). The toll free dial-in number for the live audio call is (844) 709-2008. The international dial-in number for the live audio call is (647) 253-8663. The conference ID for the call is 9796754. A live webcast of the conference call will be available on NETGEAR's Investor Relations website at http://investor.netgear.com. A replay of the call will be available via the web at http://investor.netgear.com.

About NETGEAR, Inc.

For more than 25 years, NETGEAR(r) (NASDAQ: NTGR) has been the innovative leader in connecting the world to the internet with advanced networking technologies for homes, businesses and service providers around the world. As staying connected has become more important than ever, NETGEAR delivers award-winning network solutions for remote work, distance learning, ultra high def streaming, online game play and more. To enable people to collaborate and connect to a world of information and entertainment, NETGEAR is dedicated to providing a range of connected solutions. From ultra-premium Orbi Mesh WiFi systems and high performance Nighthawk routers, to high-speed cable modems and 5G mobile wireless products to cloud-based subscription services for network management and security, to smart networking products and Video over Ethernet for Pro AV applications, NETGEAR keeps you connected. NETGEAR is headquartered in San Jose, California. Learn more on the NETGEAR Investor Page or by calling (408) 907-8000. Connect with NETGEAR: Twitter, Facebook, Instagram, LinkedIn and the NETGEAR blog at NETGEAR.com.

(c) 2021 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.

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: NETGEAR's future operating performance and financial condition, including expectations regarding continued profitability and cash generation; expectations regarding continuing market demand for the Company's products and the Company's ability to respond to this demand; the timing, distribution, sales momentum and market acceptance of recent and anticipated new product introductions that position the Company for growth and market share gain; expectations regarding supply constraints; expectations regarding the ability to participate in promotional activities leading to further market share gains; expectations regarding expected tax rates; and expectations regarding NETGEAR's paid subscriber base growth. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: uncertainty surrounding the duration and impact of the global COVID-19 pandemic, including with respect to the Company's supply chain and potential disruptions in the Company's transportation network, including with respect to the Company's distribution centers; future demand for the Company's products may be lower than anticipated; the Company may be unsuccessful, or experience delays, in manufacturing and distributing its new and existing products; consumers may choose not to adopt the Company's new product offerings or adopt competing products; the Company may be unable to continue to grow its number of registered users, its number of registered app users and/or its paid subscriber base; product performance may be adversely affected by real world operating conditions; the Company may fail to manage costs, including the cost of air freight and ocean freight and the cost of developing new products and manufacturing and distribution of its existing offerings; the Company may fail to successfully manage channel inventory levels; 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, including the Company's ability to collect receivables as they become due. 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" in the Company's quarterly report on Form 10-Q for the fiscal quarter ended March 28, 2021, filed with the Securities and Exchange Commission on April 30, 2021. Given these circumstances, you should not place undue reliance on these forward-looking statements. 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, except as required by law.

Non-GAAP Financial Information:

To supplement our unaudited selected financial data presented on a basis consistent with Generally Accepted Accounting Principles ("GAAP"), we disclose certain non-GAAP financial measures that exclude certain charges, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development, non-GAAP sales and marketing, non-GAAP general and administrative, non-GAAP other operating expenses, net, non-GAAP total operating expenses, non-GAAP operating income, non-GAAP operating margin, non-GAAP other income (expense), net, non-GAAP net income and non-GAAP net income per diluted share. These supplemental measures exclude adjustments for amortization of intangibles, stock-based compensation expense, change in fair value of contingent consideration, restructuring and other charges, litigation reserves, net, gain/loss on investments, net, and adjust for effects related to non-GAAP tax adjustments. These non-GAAP measures are not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies. We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.

In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of our operating performance on a period-to-period basis because such items are not, in our view, related to our ongoing operational performance. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. In addition, management's incentive compensation is determined using certain non-GAAP measures. Since we find these measures to be useful, we believe that investors benefit from seeing results "through the eyes" of management in addition to seeing GAAP results. We believe that these non-GAAP measures, when read in conjunction with our GAAP financials, provide useful information to investors by offering:

* the ability to make more meaningful period-to-period comparisons of our on-going operating results; * the ability to better identify trends in our underlying business and perform related trend analyses; * a better understanding of how management plans and measures our underlying business; and * an easier way to compare our operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures.

The following are explanations of the adjustments that we incorporate into non-GAAP measures, as well as the reasons for excluding them in the reconciliations of these non-GAAP financial measures:

Amortization of intangibles consists primarily of non-cash charges that can be impacted by, among other things, the timing and magnitude of acquisitions. We consider our operating results without these charges when evaluating our ongoing performance and forecasting our earnings trends, and therefore exclude such charges when presenting non-GAAP financial measures. We believe that the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of our competitors.

Stock-based compensation expense consists of non-cash charges for the estimated fair value of stock options, restricted stock units, performance shares and shares under the employee stock purchase plan granted to employees. We believe that the exclusion of these charges provides for more accurate comparisons of our operating results to peer companies due to the varying available valuation methodologies, subjective assumptions and the variety of award types. In addition, we believe it is useful to investors to understand the specific impact stock-based compensation expense has on our operating results.

Other items consist of certain items that are the result of either unique or unplanned events, including, when applicable: change in fair value of contingent consideration, restructuring and other charges, litigation reserves, net, and gain/loss on investments, net. It is difficult to predict the occurrence or estimate the amount or timing of these items in advance. Although these events are reflected in our GAAP financial statements, these unique transactions may limit the comparability of our on-going operations with prior and future periods. The amounts result from events that often arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Therefore, the amounts do not accurately reflect the underlying performance of our continuing business operations for the period in which they are incurred.

Non-GAAP tax adjustments consist of adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure on non-GAAP net income. We also believe providing financial information with and without the income tax effects relating to our non-GAAP financial measures provides our management and users of the financial statements with better clarity regarding the on-going performance of our business.

Source: NETGEAR-F

NETGEAR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

As of

June 27, December 31, 2021 2020



ASSETS

Current assets:

Cash and cash equivalents $ 328,941 $ 346,460

Short-term investments 6,378 6,858

Accounts receivable, net 290,598 337,052

Inventories 251,764 172,112

Prepaid expenses and other current assets 34,110 30,696

Total current assets 911,791 893,178

Property and equipment, net 14,217 16,080

Operating lease right-of-use assets, net 25,798 29,411

Intangibles, net 2,184 3,899

Goodwill 80,721 80,721

Other non-current assets 77,496 82,750

Total assets $ 1,112,207 $ 1,106,039



LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 70,381 $ 90,902

Accrued employee compensation 32,729 35,020

Other accrued liabilities 222,903 218,375

Deferred revenue 15,620 13,458

Income taxes payable 1,719 7,318

Total current liabilities 343,352 365,073

Non-current income taxes payable 20,370 19,174

Non-current operating lease liabilities 21,887 25,512

Other non-current liabilities 3,598 6,896

Total liabilities 389,207 416,655

Stockholders' equity:

Common stock 31 30

Additional paid-in capital 906,327 882,709

Accumulated other comprehensive income (loss) 82 (35 )

Accumulated deficit (183,440 ) (193,320 )

Total stockholders' equity 723,000 689,384

Total liabilities and stockholders' equity $ 1,112,207 $ 1,106,039

NETGEAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share and percentage data)

(Unaudited)

Three Months Ended

Six Months Ended

June 27,

2021

March 28,

2021

June 28,

2020

June 27,

2021

June 28,

2020

Net revenue

$

308,811

$

317,925

$

280,052

$

626,736

$

510,015

Cost of revenue

215,455

206,984

198,751

422,439

362,473

Gross profit

93,356

110,941

81,301

204,297

147,542

Gross margin

30.2

%

34.9

%

29.0

%

32.6

%

28.9

%

Operating expenses:

Research and development

22,586

23,829

21,144

46,415

40,883

Sales and marketing

35,740

37,815

34,384

73,555

67,415

General and administrative

15,623

15,405

15,481

31,028

28,615

Other operating expenses (income), net

(2,097

)

2,565

1,425

468

1,093

Total operating expenses

71,852

79,614

72,434

151,466

138,006

Income from operations

21,504

31,327

8,867

52,831

9,536

Operating margin

7.0

%

9.9

%

3.2

%

8.4

%

1.9

%

Interest income

3

10

49

13

311

Other income (expense), net

696

(562

)

314

134

(4,272

)

Income before income taxes

22,203

30,775

9,230

52,978

5,575

Provision for income taxes

4,369

7,815

3,247

12,184

3,765

Net income

$

17,834

$

22,960

$

5,983

$

40,794

$

1,810

Net income per share:

Basic

$

0.58

$

0.75

$

0.20

$

1.33

$

0.06

Diluted

$

0.57

$

0.72

$

0.20

$

1.29

$

0.06

Weighted average shares used to compute net income per share:

Basic

30,574

30,665

29,617

30,614

29,608

Diluted

31,464

31,814

30,070

31,648

30,079

NETGEAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share and percentage data)

(Unaudited)

Three Months Ended Six Months Ended

June 27, March 28, June 28, June 27, June 28, 2021 2021 2020 2021 2020



Net revenue $ 308,811 $ 317,925 $ 280,052 $ 626,736 $ 510,015

Cost of 215,455 206,984 198,751 422,439 362,473 revenue

Gross profit 93,356 110,941 81,301 204,297 147,542

Gross margin 30.2 % 34.9 % 29.0 % 32.6 % 28.9 %

Operating expenses:

Research and 22,586 23,829 21,144 46,415 40,883 development

Sales and 35,740 37,815 34,384 73,555 67,415 marketing

General and 15,623 15,405 15,481 31,028 28,615 administrative

Otheroperating (2,097 ) 2,565 1,425 468 1,093 expenses(income), net

Totaloperating 71,852 79,614 72,434 151,466 138,006 expenses

Income from 21,504 31,327 8,867 52,831 9,536 operations

Operating 7.0 % 9.9 % 3.2 % 8.4 % 1.9 %margin

Interest 3 10 49 13 311 income

Other income 696 (562 ) 314 134 (4,272 )(expense), net

Income before 22,203 30,775 9,230 52,978 5,575 income taxes

Provision for 4,369 7,815 3,247 12,184 3,765 income taxes

Net income $ 17,834 $ 22,960 $ 5,983 $ 40,794 $ 1,810



Net income per share:

Basic $ 0.58 $ 0.75 $ 0.20 $ 1.33 $ 0.06

Diluted $ 0.57 $ 0.72 $ 0.20 $ 1.29 $ 0.06



Weightedaverage sharesused to compute netincome pershare:

Basic 30,574 30,665 29,617 30,614 29,608

Diluted 31,464 31,814 30,070 31,648 30,079

NETGEAR, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

(In thousands, except percentage data)

(Unaudited)

STATEMENT OF OPERATIONS DATA:

Three Months Ended

Six Months Ended

June 27,

2021

March 28,

2021

June 28,

2020

June 27,

2021

June 28,

2020

GAAP gross profit

$

93,356

$

110,941

$

81,301

$

204,297

$

147,542

GAAP gross margin

30.2

%

34.9

%

29.0

%

32.6

%

28.9

%

Amortization of intangibles

178

179

179

357

357

Stock-based compensation expense

362

834

1,501

1,196

2,206

Non-GAAP gross profit

$

93,896

$

111,954

$

82,981

$

205,850

$

150,105

Non-GAAP gross margin

30.4

%

35.2

%

29.6

%

32.8

%

29.4

%

GAAP research and development

$

22,586

$

23,829

$

21,144

$

46,415

$

40,883

Stock-based compensation expense

(1,272

)

(1,146

)

(1,707

)

(2,418

)

(2,741

)

Non-GAAP research and development

$

21,314

$

22,683

$

19,437

$

43,997

$

38,142

GAAP sales and marketing

$

35,740

$

37,815

$

34,384

$

73,555

$

67,415

Amortization of intangibles

-

(1,266

)

(1,340

)

(1,266

)

(2,681

)

Stock-based compensation expense

(1,953

)

(1,780

)

(1,890

)

(3,733

)

(3,669

)

Non-GAAP sales and marketing

$

33,787

$

34,769

$

31,154

$

68,556

$

61,065

GAAP general and administrative

$

15,623

$

15,405

$

15,481

$

31,028

$

28,615

Stock-based compensation expense

(3,315

)

(3,200

)

(4,074

)

(6,515

)

(6,892

)

Non-GAAP general and administrative

$

12,308

$

12,205

$

11,407

$

24,513

$

21,723

GAAP other operating expenses (income), net

$

(2,097

)

$

2,565

$

1,425

$

468

$

1,093

Change in fair value of contingent consideration

3,003

-

(311

)

3,003

(89

)

Restructuring and other charges

(886

)

(2,270

)

(1,117

)

(3,156

)

(982

)

Litigation reserves, net

(20

)

(295

)

3

(315

)

(22

)

Non-GAAP other operating expenses, net

$

-

$

-

$

-

$

-

$

-

NETGEAR, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

(In thousands, except percentage data)

(Unaudited)

STATEMENT OF OPERATIONS DATA:

Three Months Ended Six Months Ended

June 27, March 28, June 28, June 27, June 28, 2021 2021 2020 2021 2020



GAAP gross $ 93,356 $ 110,941 $ 81,301 $ 204,297 $ 147,542 profit

GAAP gross 30.2 % 34.9 % 29.0 % 32.6 % 28.9 %margin

Amortization 178 179 179 357 357 of intangibles

Stock-basedcompensation 362 834 1,501 1,196 2,206 expense

Non-GAAP gross $ 93,896 $ 111,954 $ 82,981 $ 205,850 $ 150,105 profit

Non-GAAP gross 30.4 % 35.2 % 29.6 % 32.8 % 29.4 %margin



GAAP researchand $ 22,586 $ 23,829 $ 21,144 $ 46,415 $ 40,883 development

Stock-basedcompensation (1,272 ) (1,146 ) (1,707 ) (2,418 ) (2,741 )expense

Non-GAAPresearch and $ 21,314 $ 22,683 $ 19,437 $ 43,997 $ 38,142 development



GAAP sales and $ 35,740 $ 37,815 $ 34,384 $ 73,555 $ 67,415 marketing

Amortization - (1,266 ) (1,340 ) (1,266 ) (2,681 )of intangibles

Stock-basedcompensation (1,953 ) (1,780 ) (1,890 ) (3,733 ) (3,669 )expense

Non-GAAP sales $ 33,787 $ 34,769 $ 31,154 $ 68,556 $ 61,065 and marketing



GAAP generaland $ 15,623 $ 15,405 $ 15,481 $ 31,028 $ 28,615 administrative

Stock-basedcompensation (3,315 ) (3,200 ) (4,074 ) (6,515 ) (6,892 )expense

Non-GAAPgeneral and $ 12,308 $ 12,205 $ 11,407 $ 24,513 $ 21,723 administrative



GAAP otheroperating $ (2,097 ) $ 2,565 $ 1,425 $ 468 $ 1,093 expenses(income), net

Change in fairvalue of 3,003 - (311 ) 3,003 (89 )contingentconsideration

Restructuringand other (886 ) (2,270 ) (1,117 ) (3,156 ) (982 )charges

Litigation (20 ) (295 ) 3 (315 ) (22 )reserves, net

Non-GAAP otheroperating $ - $ - $ - $ - $ - expenses, net

NETGEAR, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)

(In thousands, except percentage data)

(Unaudited)

STATEMENT OF OPERATIONS DATA (CONTINUED):

Three Months Ended

Six Months Ended

June 27,

2021

March 28,

2021

June 28,

2020

June 27,

2021

June 28,

2020

GAAP total operating expenses

$

71,852

$

79,614

$

72,434

$

151,466

$

138,006

Amortization of intangibles

-

(1,266

)

(1,340

)

(1,266

)

(2,681

)

Stock-based compensation expense

(6,540

)

(6,126

)

(7,671

)

(12,666

)

(13,302

)

Change in fair value of contingent consideration

3,003

-

(311

)

3,003

(89

)

Restructuring and other charges

(886

)

(2,270

)

(1,117

)

(3,156

)

(982

)

Litigation reserves, net

(20

)

(295

)

3

(315

)

(22

)

Non-GAAP total operating expenses

$

67,409

$

69,657

$

61,998

$

137,066

$

120,930

GAAP operating income

$

21,504

$

31,327

$

8,867

$

52,831

$

9,536

GAAP operating margin

7.0

%

9.9

%

3.2

%

8.4

%

1.9

%

Amortization of intangibles

178

1,445

1,519

1,623

3,038

Stock-based compensation expense

6,902

6,960

9,172

13,862

15,508

Change in fair value of contingent consideration

(3,003

)

-

311

(3,003

)

89

Restructuring and other charges

886

2,270

1,117

3,156

982

Litigation reserves, net

20

295

(3

)

315

22

Non-GAAP operating income

$

26,487

$

42,297

$

20,983

$

68,784

$

29,175

Non-GAAP operating margin

8.6

%

13.3

%

7.5

%

11.0

%

5.7

%

GAAP other income (expense), net

$

696

$

(562

)

$

314

$

134

$

(4,272

)

Gain/loss on investments, net

(41

)

49

-

8

4,530

Non-GAAP other income (expense), net

$

655

$

(513

)

$

314

$

142

$

258

NETGEAR, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)

(In thousands, except percentage data)

(Unaudited)

STATEMENT OF OPERATIONS DATA (CONTINUED):

Three Months Ended Six Months Ended

June 27, March 28, June 28, June 27, June 28, 2021 2021 2020 2021 2020



GAAP totaloperating $ 71,852 $ 79,614 $ 72,434 $ 151,466 $ 138,006 expenses

Amortizationof - (1,266 ) (1,340 ) (1,266 ) (2,681 )intangibles

Stock-basedcompensation (6,540 ) (6,126 ) (7,671 ) (12,666 ) (13,302 )expense

Change infair value of 3,003 - (311 ) 3,003 (89 )contingentconsideration

Restructuringand other (886 ) (2,270 ) (1,117 ) (3,156 ) (982 )charges

Litigation (20 ) (295 ) 3 (315 ) (22 )reserves, net

Non-GAAPtotal $ 67,409 $ 69,657 $ 61,998 $ 137,066 $ 120,930 operatingexpenses



GAAPoperating $ 21,504 $ 31,327 $ 8,867 $ 52,831 $ 9,536 income

GAAPoperating 7.0 % 9.9 % 3.2 % 8.4 % 1.9 %margin

Amortizationof 178 1,445 1,519 1,623 3,038 intangibles

Stock-basedcompensation 6,902 6,960 9,172 13,862 15,508 expense

Change infair value of (3,003 ) - 311 (3,003 ) 89 contingentconsideration

Restructuringand other 886 2,270 1,117 3,156 982 charges

Litigation 20 295 (3 ) 315 22 reserves, net

Non-GAAPoperating $ 26,487 $ 42,297 $ 20,983 $ 68,784 $ 29,175 income

Non-GAAPoperating 8.6 % 13.3 % 7.5 % 11.0 % 5.7 %margin



GAAP otherincome $ 696 $ (562 ) $ 314 $ 134 $ (4,272 )(expense),net

Gain/loss oninvestments, (41 ) 49 - 8 4,530 net

Non-GAAPother income $ 655 $ (513 ) $ 314 $ 142 $ 258 (expense),net

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

Six Months Ended

June 27,

2021

March 28,

2021

June 28,

2020

June 27,

2021

June 28,

2020

GAAP net income

$

17,834

$

22,960

$

5,983

$

40,794

$

1,810

Amortization of intangibles

178

1,445

1,519

1,623

3,038

Stock-based compensation expense

6,902

6,960

9,172

13,862

15,508

Change in fair value of contingent consideration

(3,003

)

-

311

(3,003

)

89

Restructuring and other charges

886

2,270

1,117

3,156

982

Litigation reserves, net

20

295

(3

)

315

22

Gain/loss on investments, net

(41

)

49

-

8

4,530

Non-GAAP tax adjustments

(1,971

)

(2,416

)

(1,778

)

(4,387

)

(3,289

)

Non-GAAP net income

$

20,805

$

31,563

$

16,321

$

52,368

$

22,690

NET INCOME PER DILUTED SHARE:

GAAP net income per diluted share

$

0.57

$

0.72

$

0.20

$

1.29

$

0.06

Amortization of intangibles

0.01

0.05

0.05

0.05

0.10

Stock-based compensation expense

0.22

0.22

0.31

0.44

0.52

Change in fair value of contingent consideration

(0.10

)

-

0.01

(0.09

)

0.00

Restructuring and other charges

0.03

0.07

0.04

0.10

0.03

Litigation reserves, net

0.00

0.01

(0.00)

0.01

0.00

Gain/loss on investments, net

(0.00)

0.00

-

0.00

0.15

Non-GAAP tax adjustments

(0.07

)

(0.08

)

(0.07

)

(0.15

)

(0.11

)

Non-GAAP net income per diluted share

$

0.66

$

0.99

$

0.54

$

1.65

$

0.75

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 Six Months Ended

June 27, March 28, June 28, June 27, June 28, 2021 2021 2020 2021 2020



GAAP net $ 17,834 $ 22,960 $ 5,983 $ 40,794 $ 1,810 income

Amortization 178 1,445 1,519 1,623 3,038 of intangibles

Stock-basedcompensation 6,902 6,960 9,172 13,862 15,508 expense

Change in fairvalue of (3,003 ) - 311 (3,003 ) 89 contingentconsideration

Restructuringand other 886 2,270 1,117 3,156 982 charges

Litigation 20 295 (3 ) 315 22 reserves, net

Gain/loss oninvestments, (41 ) 49 - 8 4,530 net

Non-GAAP tax (1,971 ) (2,416 ) (1,778 ) (4,387 ) (3,289 )adjustments

Non-GAAP net $ 20,805 $ 31,563 $ 16,321 $ 52,368 $ 22,690 income



NET INCOME PER DILUTED SHARE:

GAAP netincome per $ 0.57 $ 0.72 $ 0.20 $ 1.29 $ 0.06 diluted share

Amortization 0.01 0.05 0.05 0.05 0.10 of intangibles

Stock-basedcompensation 0.22 0.22 0.31 0.44 0.52 expense

Change in fairvalue of (0.10 ) - 0.01 (0.09 ) 0.00 contingentconsideration

Restructuringand other 0.03 0.07 0.04 0.10 0.03 charges

Litigation 0.00 0.01 (0.00) 0.01 0.00 reserves, net

Gain/loss oninvestments, (0.00) 0.00 - 0.00 0.15 net

Non-GAAP tax (0.07 ) (0.08 ) (0.07 ) (0.15 ) (0.11 )adjustments

Non-GAAP netincome per $ 0.66 $ 0.99 $ 0.54 $ 1.65 $ 0.75 diluted share

NETGEAR, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)

(Unaudited)

Three Months Ended

June 27,

2021

March 28,

2021

December 31,

2020

September 27,

2020

June 28,

2020

Cash, cash equivalents and short-term investments

$

335,319

$

370,656

$

353,318

$

306,818

$

258,552

Cash, cash equivalents and short-term investments per diluted share

$

10.66

$

11.65

$

11.31

$

9.98

$

8.60

Accounts receivable, net

$

290,598

$

312,922

$

337,052

$

340,004

$

277,490

Days sales outstanding (DSO)

86

86

87

82

90

Inventories

$

251,764

$

215,705

$

172,112

$

144,302

$

150,585

Ending inventory turns

3.4

3.8

5.9

7.3

5.3

Weeks of channel inventory:

U.S. retail channel

12.9

11.8

8.6

5.7

6.4

U.S. distribution channel

3.4

3.6

4.9

2.8

4.2

EMEA distribution channel

7.8

4.9

5.7

6.8

4.7

APAC distribution channel

11.5

7.6

8.2

10.1

11.9

Deferred revenue (current and non-current)

$

18,482

$

18,116

$

16,623

$

13,813

$

10,792

Headcount

769

775

818

803

788

Non-GAAP diluted shares

31,464

31,814

31,235

30,741

30,070

NETGEAR, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(In thousands, except per share data, DSO, inventory turns, weeks of channelinventory, headcount and percentage data)

(Unaudited)

Three Months Ended

June 27, March 28, December September June 28, 31, 27, 2021 2021 2020 2020 2020



Cash, cashequivalentsand $ 335,319 $ 370,656 $ 353,318 $ 306,818 $ 258,552 short-terminvestments

Cash, cashequivalentsandshort-term $ 10.66 $ 11.65 $ 11.31 $ 9.98 $ 8.60 investmentsper dilutedshare



Accountsreceivable, $ 290,598 $ 312,922 $ 337,052 $ 340,004 $ 277,490 net

Days salesoutstanding 86 86 87 82 90 (DSO)



Inventories $ 251,764 $ 215,705 $ 172,112 $ 144,302 $ 150,585

Endinginventory 3.4 3.8 5.9 7.3 5.3 turns



Weeks ofchannel inventory:

U.S. retail 12.9 11.8 8.6 5.7 6.4 channel

U.S.distribution 3.4 3.6 4.9 2.8 4.2 channel

EMEAdistribution 7.8 4.9 5.7 6.8 4.7 channel

APACdistribution 11.5 7.6 8.2 10.1 11.9 channel



Deferredrevenue $ 18,482 $ 18,116 $ 16,623 $ 13,813 $ 10,792 (current andnon-current)



Headcount 769 775 818 803 788

Non-GAAPdiluted 31,464 31,814 31,235 30,741 30,070 shares

NET REVENUE BY GEOGRAPHY

Three Months Ended

Six Months Ended

June 27,

2021

March 28,

2021

June 28,

2020

June 27,

2021

June 28,

2020

Americas

$

212,634

69

%

$

219,150

69

%

$

202,246

72

%

$

431,784

69

%

$

360,436

70

%

EMEA

61,772

20

%

61,090

19

%

48,359

17

%

122,862

20

%

90,507

18

%

APAC

34,405

11

%

37,685

12

%

29,447

11

%

72,090

11

%

59,072

12

%

Total

$

308,811

100

%

$

317,925

100

%

$

280,052

100

%

$

626,736

100

%

$

510,015

100

%

NET REVENUE BY GEOGRAPHY

Three Months Ended Six Months Ended

June 27, March 28, June 28, June 27, June 28, 2021 2021 2020 2021 2020



Americas $ 212,634 69 % $ 219,150 69 % $ 202,246 72 % $ 431,784 69 % $ 360,436 70 %

EMEA 61,772 20 % 61,090 19 % 48,359 17 % 122,862 20 % 90,507 18 %

APAC 34,405 11 % 37,685 12 % 29,447 11 % 72,090 11 % 59,072 12 %

Total $ 308,811 100 % $ 317,925 100 % $ 280,052 100 % $ 626,736 100 % $ 510,015 100 %

NETGEAR, INC.

SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)

(In thousands)

(Unaudited)

NET REVENUE BY SEGMENT

Three Months Ended

Six Months Ended

June 27,

2021

March 28,

2021

June 28,

2020

June 27,

2021

June 28,

2020

Connected Home

$

229,863

$

240,918

$

230,017

$

470,781

$

394,680

SMB

78,948

77,007

50,035

155,955

115,335

Total net revenue

$

308,811

$

317,925

$

280,052

$

626,736

$

510,015

NETGEAR, INC.

SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)

(In thousands)

(Unaudited)

NET REVENUE BY SEGMENT

Three Months Ended Six Months Ended

June 27, March 28, June 28, June 27, June 28, 2021 2021 2020 2021 2020



Connected Home $ 229,863 $ 240,918 $ 230,017 $ 470,781 $ 394,680

SMB 78,948 77,007 50,035 155,955 115,335

Total net $ 308,811 $ 317,925 $ 280,052 $ 626,736 $ 510,015 revenue

SERVICE PROVIDER NET REVENUE

Three Months Ended

Six Months Ended

June 27,

2021

March 28,

2021

June 28,

2020

June 27,

2021

June 28,

2020

Connected Home

$

35,391

$

22,238

$

44,152

$

57,629

$

70,839

SMB

522

799

871

1,321

1,668

Total service provider net revenue

$

35,913

$

23,037

$

45,023

$

58,950

$

72,507

View source version on businesswire.com: https://www.businesswire.com/news/home/20210721005867/en/

CONTACT: NETGEAR Investor Relations Erik Bylin investors@netgear.com