• Third quarter 2018 net revenue of $400.6 million, as compared to $355.5 million in the comparable prior year quarter, an increase of 12.7%.
  • Third quarter 2018 GAAP net income of $9.9 million, as compared to $20.8 million in the comparable prior year quarter.
    - Third quarter 2018 non-GAAP net income of $24.9 million, as compared to $26.2 million in the comparable prior year quarter.
  • Third quarter 2018 GAAP net income per diluted share of $0.30, as compared to net income per diluted share of $0.64 in the comparable prior year quarter.
    - Third quarter 2018 non-GAAP net income per diluted share of $0.76, as compared to $0.81 in the comparable prior year quarter.
  • Arlo Technologies, Inc. completed its IPO during the third quarter 2018, raising IPO proceeds of $170.2 million, net of offering costs.
  • Business outlook1: The Company expects fourth quarter 2018 net revenue to be in the range of $430 million to $445 million, with GAAP operating margin in the range of (2.5)% to (1.5)% and non-GAAP operating margin in the range of 2.5% to 3.5%. Additionally, the Company expects the GAAP tax rate to be approximately 85.0% and non-GAAP tax rate to be approximately 22.0%.

SAN JOSE, Calif., Oct. 25, 2018 (GLOBE NEWSWIRE) -- NETGEAR, Inc. (NASDAQ: NTGR), a global networking company that delivers innovative networking and Internet connected products to consumers and growing businesses, today reported financial results for the third quarter ended September 30, 2018. NETGEAR, Inc. is the majority owner of Arlo Technologies, Inc. (NYSE: ARLO) (“Arlo”).

Net revenue for the third quarter ended September 30, 2018 was $400.6 million, as compared to $355.5 million in the third quarter ended October 1, 2017, and $366.8 million in the second quarter ended July 1, 2018. Net income, computed in accordance with GAAP, for the third quarter of 2018 was $9.9 million, or $0.30 net income per diluted share. This compared to GAAP net income of $20.8 million, or $0.64 net income per diluted share, in the third quarter of 2017, and GAAP net loss of $5.2 million, or $0.17 net loss per diluted share, in the second quarter of 2018. Non-GAAP net income was $0.76 per diluted share in the third quarter of 2018, as compared to non-GAAP net income of $0.81 per diluted share in the third quarter of 2017, and $0.57 per diluted share in the second quarter of 2018.

Operating margin, computed in accordance with GAAP, for the third quarter of 2018 was 2.4%, as compared to 7.1% in the year ago comparable quarter, and (0.8)% in the second quarter of 2018. Non-GAAP operating margin was 7.1% in the third quarter of 2018, as compared to 9.5% in the third quarter of 2017, and 5.9% in the second quarter of 2018. The non-GAAP operating margin for the third quarter of 2018 includes $15.5 million of duplicate costs associated with the separation of Arlo and the corresponding dis-synergies created, as compared to zero duplicate costs in the third quarter of 2017, and $5.1 million of duplicate costs in the second quarter of 2018.

As previously announced, NETGEAR completed the initial public offering of Arlo on August 7, 2018, and Arlo’s results are consolidated into NETGEAR’s results for the fiscal third quarter. NETGEAR currently owns an approximate 84.2% controlling interest in Arlo. The Arlo loss attributable to the 15.8% of Arlo's common stock not owned by NETGEAR, which amounted to $(0.8) million in the third quarter, is excluded from the net income of NETGEAR. Subject to market conditions and other factors, including final approval by NETGEAR’s Board of Directors and other customary requirements, the Company presently intends to distribute its holdings of Arlo common stock prior to the end of its first quarter of 2019. Following the distribution, Arlo results for all historical periods, including the quarter in which the distribution occurs, will be reclassified into NETGEAR discontinued operations.

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 had a very successful third quarter of 2018, driven by Orbi, cable modems and gateways, SMB switches and the Arlo business. We saw year-over-year top line growth across all three segments, which led to record topline revenue of $400.6 million for the quarter. Finally, the entire team did an incredible job of moving forward with the separation of the Arlo business, as evidenced by the successful completion of Arlo’s IPO in August."

Mr. Lo continued, “By continuing to capitalize on technology inflections, creating new categories, and building recurring service revenue, we believe we can maintain our market leadership position and drive future growth at NETGEAR."

Bryan Murray, Chief Financial Officer of NETGEAR, added, "During the third quarter of 2018, we generated cash flow from operations of $33.8 million, which brings our total over the trailing twelve months to $60.0 million. We are very confident in the cash generating ability of our business.”

Business Outlook

Bryan Murray, Chief Financial Officer of NETGEAR, added, "Looking forward to the fourth quarter of 2018, we expect net revenue to be in the range of $430 million to $445 million. Excluding the Arlo component, net revenue is expected to be in the range of $275 million to $290 million, while Arlo is expected to be in the range of $140 million to $155 million."

"GAAP operating margin is expected to be in the range of (2.5)% to (1.5)%, which includes approximately $7.5 million of one-time costs associated with the separation inclusive of professional services fees for various advisory and audit related costs."

"Non-GAAP operating margin is expected to be in the range of 2.5% to 3.5%, which includes approximately $21 million of costs associated with the separation of Arlo and the corresponding dis-synergies created as we hire talent to duplicate certain roles and that business begins to stand up on its own. We expect NETGEAR adjusted operating margin excluding Arlo, a non-GAAP financial measure, to be in the range of 8.5% to 9.5%, excluding any expected income from transition services agreed with Arlo."

"Our GAAP tax rate is expected to be approximately 85.0%, and our non-GAAP tax rate is expected to be 22.0% for the fourth quarter of 2018.”

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

  Three Months Ending
  December 31, 2018
  Operating Margin Rate Tax Rate
GAAP (2.5)% - (1.5)% 85.0%
Estimated adjustments for1:    
Amortization of intangibles 0.6% __
Stock-based compensation expense 2.4% __
Separation expense 1.7% __
Restructuring and other charges 0.3% __
Tax effects of non-GAAP adjustments __ (63.0)%
Non-GAAP 2.5% - 3.5% 22.0%


 Three Months Ending 
 December 31,
 2018
 
 Consolidated2 Arlo NTGR excl. Arlo 
 (in thousands, except percentage data) 
Net revenue$430,000 - $445,000 $140,000 - $155,000 $275,000 - $290,000 
Operating income$(10,750) - $(6,500) $(25,400) - $(23,400) $12,500 - $16,000 
Operating margin(2.5)% - (1.5)% (18.1)% - (15.1)% 4.5% - 5.5%3
Estimated adjustments for1:      
Amortization of intangibles    0.7% 
Stock-based compensation expense    2.3% 
Separation expense    1.5% 
Restructuring and other charges    0.5% 
Arlo transition services agreement income    (1.0)% 
Adjusted operating margin    8.5% - 9.5%3

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; discrete tax benefits or detriments relating to tax windfalls or shortfalls from equity awards; and any additional impacts relating to the implementation of U.S. tax reform. New material income and expense items such as these could have a significant effect on our guidance and future GAAP results.
2 Represent NETGEAR's consolidated GAAP estimates.
3 The operating margin rates for NTGR excl. Arlo are not GAAP, but rather a non-GAAP measure.

This press release does not constitute an offer to sell or the solicitation of an offer to buy securities, and shall not constitute an offer, solicitation, or sale in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction.

Investor Conference Call / Webcast Details
NETGEAR will review the third quarter results and discuss management's expectations for the fourth quarter of 2018 today, Thursday, October 25, 2018 at 6 p.m. ET (3 p.m. PT). The toll free dial-in number for the live audio call is (866) 393-4306. The international dial-in number for the live audio call is (734) 385-2616. The conference ID for the call is 3791576. 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.
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 (WiFi and LTE), 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 26,000 retail locations around the globe, and through approximately 23,000 value-added resellers, as well as multiple major cable, mobile and wireline service providers around the world. 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.

© 2018 NETGEAR, Inc. NETGEAR, the NETGEAR logo, Arlo, Orbi and Nighthawk 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: the separation of the Arlo business, including NETGEAR’s ability to pursue its long-term strategies; the potential spin-off of NETGEAR’s remaining interest in Arlo, including whether the spin-off will occur and, if so, the timing of the spin-off; NETGEAR’s future operating performance and financial condition, expected net revenue, GAAP and non-GAAP operating margins, and GAAP and non-GAAP tax rates; expectations regarding the timing, distribution, sales momentum and market acceptance of recent and anticipated new product introductions that position the Company for growth; and expectations regarding seasonal changes in the Company’s business performance. 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,” in the Company's quarterly report on Form 10-Q for the fiscal quarter ended July 1, 2018, filed with the Securities and Exchange Commission on August 3, 2018. 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 total operating expenses, non-GAAP operating income, non-GAAP operating margin, non-GAAP NETGEAR operating margin and adjusted operating margin excluding Arlo, non-GAAP other income (expense), net, non-GAAP net income and non-GAAP net income per diluted share. NETGEAR operating margin excluding Arlo reflects estimated or reported results from operations after removing Arlo’s estimated or reported results for the relevant fiscal period, such Arlo estimates or amounts having being prepared in accordance with GAAP. NETGEAR adjusted operating margin excluding Arlo reflects estimated or reported results from operations after removing Arlo’s estimated or reported results and adjusts further by removing Arlo's non-GAAP estimates or reported amounts for the relevant fiscal period. These supplemental measures exclude adjustments for amortization of intangibles, stock-based compensation expense, separation expense, restructuring and other charges, litigation reserves, net, gain on investment, impairment charges to investment, and the related tax effects, and non-controlling interest share of non-GAAP adjustments, net of tax. 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 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: separation expense, restructuring and other charges, Arlo transition services agreement income, litigation reserves, net, gain on investment, and impairment charges to investment. 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.

Tax effects consist of the various above 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.

NETGEAR operating margin and adjusted operating margin excluding Arlo: We believe providing financial information showing the effect of Arlo's proposed separation provides our management and users of the financial statements with better clarity regarding the likely on-going performance of the remaining business upon completion of the separation. We currently intend to distribute our approximate 84.2% ownership position in Arlo to all NETGEAR shareholders by the end of the first quarter of 2019, subject to market conditions and other factors, including final approval by NETGEAR’s Board of Directors and other customary requirements. Following the distribution, Arlo results for all historical periods, including the quarter in which the distribution occurs, will be reclassified into NETGEAR discontinued operations.

Non-controlling Interest share of Non-GAAP Adjustments, net of tax: As a result of Arlo's IPO, the amount of net loss related to non-controlling interest is reported and presented separately in the consolidated Statements of Operations. We have excluded the non-controlling share of any non-GAAP adjusted measures recorded by Arlo, as we believe it is useful to understand the effect of excluding this item when evaluating our ongoing performance.

Source: NETGEAR-F



NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
  
 As of
 September 30,
 2018
 December 31,
 2017
ASSETS   
Current assets:   
Cash and cash equivalents$393,640  $202,870 
Short-term investments136,173  126,926 
Accounts receivable, net358,982  412,798 
Inventories330,516  245,894 
Prepaid expenses and other current assets39,011  27,176 
Total current assets1,258,322  1,015,664 
Property and equipment, net56,647  20,660 
Intangibles, net22,341  24,988 
Goodwill101,965  85,463 
Other non-current assets94,047  61,789 
Total assets$1,533,322  $1,208,564 
    
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$168,155  $111,915 
Accrued employee compensation31,168  27,752 
Other accrued liabilities282,410  222,470 
Deferred Revenue35,485  55,284 
Income taxes payable6,853  7,015 
Total current liabilities524,071  424,436 
Non-current income taxes payable21,273  31,544 
Other non-current liabilities53,499  22,099 
Total liabilities598,843  478,079 
Stockholders' equity:   
Common stock32  31 
Additional paid-in capital785,694  603,137 
Accumulated other comprehensive loss(36) (851)
Retained earnings124,488  128,168 
Total NETGEAR, Inc. stockholders' equity910,178  730,485 
Stockholders' equity attributable to non-controlling interest24,301   
Total stockholders' equity$934,479  $730,485 
Total liabilities and stockholders' equity$1,533,322  $1,208,564 



NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
(Unaudited)
 
 
 Three Months Ended Nine Months Ended
 September 30,
 2018
 July 1,
 2018
 October 1,
 2017
 September 30,
 2018
 October 1,
 2017
          
Net revenue$400,586  $366,820  $355,483  $1,112,379  $1,009,863 
Cost of revenue276,394  257,648  252,388  774,510  717,900 
Gross profit124,192  109,172  103,095  337,869  291,963 
Gross margin31.0% 29.8% 29.0% 30.4% 28.9%
Operating expenses:         
Research and development35,253  31,371  23,127  95,571  69,167 
Sales and marketing49,005  46,983  40,311  139,646  115,001 
General and administrative23,268  20,448  14,229  60,354  40,373 
Separation expense7,054  11,984    25,822   
Restructuring and other charges1  1,376  19  1,368  78 
Litigation reserves, net  5  15  5  68 
Total operating expenses114,581  112,167  77,701  322,766  224,687 
Income (loss) from operations9,611  (2,995) 25,394  15,103  67,276 
Operating margin2.4% (0.8)% 7.1% 1.4% 6.7%
Interest income1,490  1,072  501  3,310  1,388 
Other income (expense), net829  1,061  666  638  1,384 
Income (loss) before income taxes11,930  (862) 26,561  19,051  70,048 
Provision for income taxes2,780  4,368  5,767  9,541  18,678 
Consolidated net income (loss)9,150  (5,230) 20,794  9,510  51,370 
Net loss attributable to non-controlling interest(799)     (799)  
Net income (loss) attributable to NETGEAR, Inc.$9,949  $(5,230) $20,794  $10,309  $51,370 
          
Net income (loss) per share attributable to NETGEAR, Inc.:
         
Basic$0.31  $(0.17) $0.66  $0.33  $1.59 
Diluted$0.30  $(0.17) $0.64  $0.31  $1.54 
          
Weighted average shares used to compute net income (loss) per share attributable to NETGEAR, Inc.:         
Basic31,802  31,674  31,704  31,634  32,335 
Diluted32,974  31,674  32,393  32,826  33,269 



NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)
 
         
STATEMENT OF OPERATIONS DATA:        
          
 Three Months Ended Nine Months Ended
 September 30,
 2018
 July 1,
 2018
 October 1,
 2017
 September 30,
 2018
 October 1,
 2017
          
GAAP gross profit$124,192  $109,172  $103,095  $337,869  $291,963 
GAAP gross margin31.0% 29.8% 29.0% 30.4% 28.9%
Amortization of intangibles498  589  852  1,792  4,837 
Stock-based compensation expense853  866  499  2,571  1,477 
Non-GAAP gross profit$125,543  $110,627  $104,446  $342,232  $298,277 
Non-GAAP gross margin31.3% 30.2% 29.4% 30.8% 29.5%
          
GAAP research and development$35,253  $31,371  $23,127  $95,571  $69,167 
Stock-based compensation expense(1,907) (1,949) (1,056) (5,431) (3,748)
Non-GAAP research and development$33,346  $29,422  $22,071  $90,140  $65,419 
          
GAAP sales and marketing$49,005  $46,983  $40,311  $139,646  $115,001 
Amortization of intangibles(1,806) (1,757) (1,756) (5,319) (5,299)
Stock-based compensation expense(2,728) (2,588) (1,654) (7,847) (4,339)
Non-GAAP sales and marketing$44,471  $42,638  $36,901  $126,480  $105,363 
          
GAAP general and administrative$23,268  $20,448  $14,229  $60,354  $40,373 
Stock-based compensation expense(4,066) (3,567) (2,374) (10,825) (6,848)
Non-GAAP general and administrative$19,202  $16,881  $11,855  $49,529  $33,525 
          
GAAP total operating expenses$114,581  $112,167  $77,701  $322,766  $224,687 
Amortization of intangibles(1,806) (1,757) (1,756) (5,319) (5,299)
Stock-based compensation expense(8,701) (8,104) (5,084) (24,103) (14,935)
Separation expense(7,054) (11,984)   (25,822)  
Restructuring and other charges(1) (1,376) (19) (1,368) (78)
Litigation reserves, net  (5) (15) (5) (68)
Non-GAAP total operating expenses$97,019  $88,941  $70,827  $266,149  $204,307 



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 Nine Months Ended
 September 30,
 2018
 July 1,
 2018
 October 1,
 2017
 September 30,
 2018
 October 1,
 2017
          
GAAP operating income (loss)$9,611  $(2,995) $25,394  $15,103  $67,276 
GAAP operating margin2.4% (0.8)% 7.1% 1.4% 6.7%
Amortization of intangibles2,304  2,346  2,608  7,111  10,136 
Stock-based compensation expense9,554  8,970  5,583  26,674  16,412 
Separation expense7,054  11,984    25,822   
Restructuring and other charges1  1,376  19  1,368  78 
Litigation reserves, net  5  15  5  68 
Non-GAAP operating income$28,524  $21,686  $33,619  $76,083  $93,970 
Non-GAAP operating margin7.1% 5.9% 9.5% 6.8% 9.3%
          
GAAP other income (expense), net$829  $1,061  $666  $638  $1,384 
Gain on investments(349)     (349)  
Impairment charges to investments      1,400   
Non-GAAP other income (expense), net$480  $1,061  $666  $1,689  $1,384 
          
GAAP net income (loss) attributable to NETGEAR, Inc.$9,949  $(5,230) $20,794  $10,309  $51,370 
Non-controlling interest share of Non-GAAP adjustments, net of tax(857)     (857)  
Amortization of intangibles2,304  2,346  2,608  7,111  10,136 
Stock-based compensation expense9,554  8,970  5,583  26,674  16,412 
Separation expense7,054  11,984    25,822   
Restructuring and other charges1  1,376  19  1,368  78 
Litigation reserves, net  5  15  5  68 
Gain on investments(349)     (349)  
Impairment charges to investment      1,400   
Tax effects of above non-GAAP adjustments(2,733) (839) (2,864) (7,561) (10,354)
Non-GAAP net income attributable to NETGEAR, Inc.$24,923  $18,612  $26,155  $63,922  $67,710 



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 30,
 2018
 July 1,
 2018
 October 1,
 2017
 September 30,
 2018
 October 1,
 2017
NET INCOME (LOSS) PER DILUTED SHARE ATTRIBUTABLE TO NETGEAR, INC.:         
GAAP net income (loss) per diluted share attributable to NETGEAR, Inc.$0.30  $(0.17) $0.64  $0.31  $1.54 
Non-controlling interest share of Non-GAAP adjustments, net of tax(0.03)     (0.03)  
Amortization of intangibles0.07  0.07  0.08  0.22  0.30 
Stock-based compensation expense0.29  0.27  0.17  0.81  0.49 
Separation expense0.21  0.37    0.79   
Restructuring and other charges0.00  0.04  0.00  0.04   
Litigation reserves, net  0.00  0.00  0.00  0.00 
Gain on investment(0.01)     (0.01) 0.00 
Impairment charges to investment      0.04   
Tax effects of above non-GAAP adjustments(0.07) (0.03) (0.08) (0.22) (0.29)
Non-GAAP net income per diluted share attributable to NETGEAR, Inc.*$0.76  $0.57  $0.81  $1.95  $2.04 
          
Shares used in computing GAAP net income (loss) per diluted share32,974  31,674  32,393  32,826  33,269 
Shares used in computing non-GAAP net income per diluted share32,974  32,742  32,393  32,826  33,269 

*The per share reconciliation of GAAP to non-GAAP may not aggregate due to both calculations utilizing a different share basis. The GAAP net loss per diluted share calculation uses a lower share count as it excludes potentially dilutive shares included in the non-GAAP net income per diluted share calculation.


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
 September 30,
 2018
 July 1,
 2018
 April 1,
 2018
 December 31,
 2017
 October 1,
 2017
          
Cash, cash equivalents and short-term investments$529,813 $355,638 $386,237 $329,796 $372,786
Cash, cash equivalents and short-term investments per diluted share$16.07 $10.86 $11.83 $10.22 $11.51
          
Accounts receivable, net$358,982 $343,883 $317,102 $412,798 $295,591
Days sales outstanding (DSO)82 85 84 95 76
          
Inventories$330,516 $291,459 $266,345 $245,894 $249,078
Ending inventory turns3.3 3.5 3.6 4.8 4.1
          
Weeks of channel inventory:         
U.S. retail channel10.3 9.0 8.5 6.7 10.5
U.S. distribution channel5.0 4.1 4.2 3.9 9.1
EMEA distribution channel4.3 4.0 5.8 5.9 5.6
APAC distribution channel7.1 9.5 7.0 8.1 6.3
          
Deferred revenue (current and non-current)$55,632 $47,967 $46,494 $69,399 $54,916
          
Headcount1,200 1,108 1,047 1,008 982
Non-GAAP diluted shares32,974 32,742 32,660 32,270 32,393

NET REVENUE BY GEOGRAPHY

 Three Months Ended Nine Months Ended
 September 30,
 2018
 July 1,
 2018
 October 1,
 2017
 September 30,
 2018
 October 1,
 2017
Americas$288,784 72% $259,826 71% $244,388 69% $782,230 70% $682,966 68%
EMEA64,917 16% 68,681 19% 62,161 17% 200,227 18% 175,810 17%
APAC46,885 12% 38,313 10% 48,934 14% 129,922 12% 151,087 15%
Total$400,586 100% $366,820 100% $355,483 100% $1,112,379 100% $1,009,863 100%


NETGEAR, INC.
SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
(In thousands, except percentage data)
(Unaudited)

NET REVENUE BY SEGMENT

 Three Months Ended Nine Months Ended
 September 30,
 2018
 July 1,
 2018
 October 1,
 2017
 September 30,
 2018
 October 1,
 2017
Net revenue:         
Arlo$131,174  $104,813  $110,460  $332,197  $249,904 
Connected Home194,684  191,164  183,099  563,628  563,365 
SMB74,728  70,843  61,924  216,554  196,594 
Total net revenue$400,586  $366,820  $355,483  $1,112,379  $1,009,863 

SERVICE PROVIDER NET REVENUE

 Three Months Ended Nine Months Ended
 September 30,
 2018
 July 1,
 2018
 October 1,
 2017
 September 30,
 2018
 October 1,
 2017
Arlo$5,973  $7,591  $5,794  $21,951  $15,743 
Connected Home30,769  46,333  44,631  118,899  146,309 
SMB1,191  700  1,114  2,954  2,492 
Total service provider net revenue$37,933  $54,624  $51,539  $143,804  $164,544 

COMPONENTS OF OPERATING RESULTS

 Three Months Ended
 September 30,
 2018
 Consolidated Arlo NTGR excl. Arlo 5 
       
Net revenue$400,586  $131,174  $269,412  
       
GAAP operating income (loss)$9,611  $(13,376) $22,987  
GAAP operating margin2.4% (10.2)% 8.5% 
Amortization of intangibles2,304  381  1,923  
Stock-based compensation expense9,554  3,437  6,117  
Separation expense7,054  5,823  1,231  
Restructuring and other charges1    1  
Non-GAAP operating income$28,524  $(3,735)4$32,259  
Non-GAAP operating margin7.1% (2.8)% 12.0% 
Arlo transition services agreement income (TSA)    4,583  
Non-GAAP operating income, excluding TSA    $27,676  
Non-GAAP operating margin, excluding TSA    10.3% 

4 Non-GAAP operating loss as reported for Arlo Technologies, Inc. includes $4,583 thousands of transition services agreement expense. This expenditure has not been adjusted from Arlo Technologies, Inc. non-GAAP operating results as it appropriately reflects resources consumed by Arlo Technologies, Inc. operating as a standalone entity.
5 The amounts for NTGR excl. Arlo are not GAAP, but rather a non-GAAP measure.