NEWS RELEASE

NETGEAR® REPORTS SECOND QUARTER 2016 RESULTS

•
Second quarter 2016 net revenue of $311.7 million, as compared to $288.8 million in the comparable prior year quarter, increase of 7.9%.
•
Second quarter 2016 GAAP net income of $16.0 million, as compared to $3.7 million in the comparable prior year quarter.
◦
Second quarter 2016 non-GAAP net income of $24.1 million, as compared to $9.9 million in the comparable prior year quarter.
•
Second quarter 2016 GAAP net income per diluted share of $0.48, as compared to $0.11 in the comparable prior year quarter.
◦
Second quarter 2016 non-GAAP net income per diluted share of $0.72, as compared to $0.29 in the comparable prior year quarter.
•
Business outlook1: Company expects third quarter 2016 net revenue to be in the range of $315 million to $330 million, with non-GAAP operating margin in the range of 10.5% to 11.5%. Additionally, the Company expects the non-GAAP tax rate to be approximately 35%.

SAN JOSE, California - July 27, 2016 - NETGEAR, Inc. (NASDAQ: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the second quarter ended July 3, 2016.

Net revenue for the second quarter ended July 3, 2016 was $311.7 million, as compared to $288.8 million in the second quarter ended June 28, 2015, and $310.3 million in the first quarter ended April 3, 2016. Net income, computed in accordance with GAAP, for the second quarter of 2016 was $16.0 million, or $0.48 net income per diluted share. This compared to GAAP net income of $3.7 million, or $0.11 net income per diluted share, in the second quarter of 2015, and GAAP net income of $16.6 million, or $0.50 net income per diluted share, in the first quarter of 2016. Non-GAAP net income was $0.72 per diluted share in the second quarter of 2016, as compared to non-GAAP net income of $0.29 per diluted share in the second quarter of 2015 and $0.74 per diluted share in the first quarter of 2016.

Operating margin, computed in accordance with GAAP, for the second quarter of 2016 was 8.2%, as compared to 3.9% in the year ago comparable quarter, and 8.3% in the first quarter of 2016. Non-GAAP operating margin was 11.6% in the second quarter of 2016, as compared to 7.1% in the second quarter of 2015 and 11.9% in the first quarter of 2016.

The differences between GAAP and non-GAAP financial measures include adjustments for amortization of intangibles, stock-based compensation expense, restructuring and other charges, losses on inventory commitments due to restructuring, litigation reserves, net, gain on litigation settlements, loss pertaining to cost method investment and tax effect. 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 were pleased with our financial results for the second quarter of 2016, which came in higher than we had expected in revenue and non-GAAP operating margin. The Retail Business Unit and Commercial Business Unit both outperformed expectations by posting sequential growth despite typically slower second quarter seasonality. Overall, our financial results reinforce that the Company is on a strong trajectory in 2016.”

Mr. Lo continued, “During the quarter we once again saw continued strength in North America, slight year-over-year growth in APAC, while EMEA continued to be challenged, primarily due to significantly reduced service provider revenue."

Page 1



Christine Gorjanc, Chief Financial Officer of NETGEAR, added, "During the second quarter of 2016, we continued to be opportunistic buyers of NETGEAR equity and repurchased approximately 314,000 shares of common stock, which makes our total repurchase amount since Q4 2013 approximately 9.2 million shares.”

Ms. Gorjanc continued, "Looking forward to the third quarter of 20161, we expect net revenue to be in the range of $315 million to $330 million. Our revenue outlook reflects back-to-school seasonality for the Retail Business Unit, but a reduced service provider revenue forecast. Non-GAAP operating margin is expected to be in the range of 10.5% to 11.5%. Our non-GAAP tax rate is expected to be approximately 35% for the third quarter of 2016.”

1 While a reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis, the company has provided a reconciliation of GAAP to non-GAAP financial measures in the accompanying schedules for its fiscal quarters ended July 3, 2016, June 28, 2015 and April 3, 2016, as well as the six month periods ended July 3, 2016 and June 28, 2015.

Investor Conference Call / Webcast Details
NETGEAR will review the second quarter results and discuss management's expectations for the third quarter of 2016 today, Wednesday, July 27, 2016 at 5 p.m. ET (2 p.m. PT). The dial-in number for the live audio call is (201) 689-8471. A live webcast of the conference call will be available on NETGEAR's website at http://investor.netgear.com. A replay of the call will be available 2 hours following the call through midnight ET (9 p.m. PT) on Wednesday, August 3, 2016 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com. The account number to access the phone replay is 13640977.

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 28,000 retail locations around the globe, and through approximately 29,000 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.

© 2016 NETGEAR, Inc. NETGEAR and the NETGEAR logo are trademarks or registered trademarks of NETGEAR, Inc. and its affiliates in the United States and/or other countries. Other brand and product names are trademarks or registered trademarks of their respective holders. The information contained herein is subject to change without notice. NETGEAR shall not be liable for technical or editorial errors or omissions contained herein. All rights reserved.

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


Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 for NETGEAR, Inc.:
This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words “anticipate,” “expect,” “believe,” “will,” “may,” “should,” “estimate,” “project,” “outlook,” “forecast” or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent NETGEAR, Inc.’s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding: expected net revenue, non-GAAP operating margin and tax rates; expectations regarding the timing, distribution, sales momentum

Page 2


and market acceptance of recent and anticipated new product introductions that position the Company for growth; expectations regarding seasonal changes in the Company’s business unit performance; and expectations regarding repurchases of the Company’s common stock. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: future demand for the Company's products may be lower than anticipated; consumers may choose not to adopt the Company's new product offerings or adopt competing products; product performance may be adversely affected by real world operating conditions; the Company may be unsuccessful or experience delays in manufacturing and distributing its new and existing products; telecommunications service providers may choose to slow their deployment of the Company's products or utilize competing products; the Company may be unable to collect receivables as they become due; the Company may fail to manage costs, including the cost of developing new products and manufacturing and distribution of its existing offerings; the Company may fail to successfully continue to effect operating expense savings; changes in the level of NETGEAR's cash resources and the Company's planned usage of such resources, including potential repurchases of the Company’s common stock; changes in the Company's stock price and developments in the business that could increase the Company's cash needs; fluctuations in foreign exchange rates; and the actions and financial health of the Company's customers. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect NETGEAR and its business are detailed in the Company's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled “Part II - Item 1A. Risk Factors,” pages 39 through 59, in the Company's quarterly report on Form 10-Q for the fiscal quarter ended April 3, 2016, filed with the Securities and Exchange Commission on May 6, 2016.  NETGEAR undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Use of Non-GAAP Financial Information:
To supplement our consolidated financial statements presented on a GAAP basis, NETGEAR uses non-GAAP financial measures, which are adjusted to exclude certain expenses and tax adjustments, where applicable. We believe non-GAAP financial measures are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of NETGEAR's underlying operational results and trends and our marketplace performance. For example, the non-GAAP results are an indication of our baseline performance before charges that are considered by management to be outside of our core operating results. In addition, these adjusted non-GAAP results are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial measures prepared in accordance with generally accepted accounting principles in the United States.    

Source: NETGEAR-F

-Financial Tables Attached-


Page 3



NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

 
July 3,
2016
 
December 31,
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
226,011

 
$
181,945

Short-term investments
126,661

 
96,321

Accounts receivable, net
230,550

 
290,642

Inventories
207,841

 
213,118

Prepaid expenses and other current assets
36,363

 
39,117

Total current assets
827,426

 
821,143

Property and equipment, net
19,273

 
22,384

Intangibles, net
40,459

 
48,947

Goodwill
81,721

 
81,721

Other non-current assets
71,887

 
76,374

Total assets
$
1,040,766

 
$
1,050,569

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
80,714

 
$
90,546

Accrued employee compensation
31,217

 
27,868

Other accrued liabilities
132,124

 
166,282

Deferred revenue
29,261

 
29,125

Income taxes payable
—

 
1,951

Total current liabilities
273,316

 
315,772

Non-current income taxes payable
14,913

 
14,444

Other non-current liabilities
11,740

 
11,643

Total liabilities
299,969

 
341,859

Stockholders' equity:
 
 
 
Common stock
33

 
33

Additional paid-in capital
539,621

 
513,047

Accumulated other comprehensive income
59

 
3

Retained earnings
201,084

 
195,627

Total stockholders' equity
740,797

 
708,710

Total liabilities and stockholders' equity
$
1,040,766

 
$
1,050,569



Page 4


NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
July 3,
2016
 
April 3,
2016
 
June 28,
2015
 
July 3,
2016
 
June 28,
2015
 
 
 
 
 
 
 
 
 
 
Net revenue
$
311,655

 
$
310,256

 
$
288,782

 
$
621,911

 
$
597,939

Cost of revenue
213,867

 
209,691

 
211,126

 
423,558

 
432,003

Gross profit
97,788

 
100,565

 
77,656

 
198,353

 
165,936

Gross margin
31.4
%
 
32.4
%
 
26.9
%
 
31.9
%
 
27.8
%
Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
21,804

 
22,137

 
21,102

 
43,941

 
41,554

Sales and marketing
36,089

 
37,277

 
34,013

 
73,366

 
71,615

General and administrative
13,035

 
12,849

 
10,366

 
25,884

 
21,389

Restructuring and other charges
1,311

 
2,678

 
974

 
3,989

 
5,368

Litigation reserves, net
35

 
10

 
—

 
45

 
(2,690
)
Total operating expenses
72,274

 
74,951

 
66,455

 
147,225

 
137,236

Income from operations
25,514

 
25,614

 
11,201

 
51,128

 
28,700

Operating margin
8.2
%
 
8.3
%
 
3.9
%
 
8.2
%
 
4.8
%
Interest income
279

 
234

 
67

 
513

 
119

Other income (expense), net
(332
)
 
(366
)
 
(343
)
 
(698
)
 
132

Income before income taxes
25,461

 
25,482

 
10,925

 
50,943

 
28,951

Provision for income taxes
9,427

 
8,893

 
7,258

 
18,320

 
17,273

Net income
$
16,034

 
$
16,589

 
$
3,667

 
$
32,623

 
$
11,678

 
 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.49

 
$
0.51

 
$
0.11

 
$
1.00

 
$
0.34

Diluted
$
0.48

 
$
0.50

 
$
0.11

 
$
0.98

 
$
0.34

 
 
 
 
 
 
 
 
 
 
Weighted average shares used to compute net income per share:
 
 
 
 
 
 
 
 
 
Basic
32,639

 
32,519

 
33,792

 
32,578

 
34,227

Diluted
33,493

 
33,269

 
34,308

 
33,390

 
34,790



Page 5



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
 
July 3,
2016
 
April 3,
2016
 
June 28,
2015
 
July 3,
2016
 
June 28,
2015
 
 
 
 
 
 
 
 
 
 
GAAP gross profit
$
97,788

 
$
100,565

 
$
77,656

 
$
198,353

 
$
165,936

Amortization of intangibles
2,394

 
2,394

 
2,506

 
4,788

 
5,096

Stock-based compensation expense
451

 
439

 
336

 
890

 
832

Losses on inventory commitments due to restructuring
—

 
—

 
—

 
—

 
407

Non-GAAP gross profit
$
100,633

 
$
103,398

 
$
80,498

 
$
204,031

 
$
172,271

Non-GAAP gross margin
32.3
%
 
33.3
%
 
27.9
%
 
32.8
%
 
28.8
%
 
 
 
 
 
 
 
 
 
 
GAAP research and development
$
21,804

 
$
22,137

 
$
21,102

 
$
43,941

 
$
41,554

Stock-based compensation expense
(1,118
)
 
(866
)
 
(773
)
 
(1,984
)
 
(1,618
)
Non-GAAP research and development
$
20,686

 
$
21,271

 
$
20,329

 
$
41,957

 
$
39,936

 
 
 
 
 
 
 
 
 
 
GAAP sales and marketing
$
36,089

 
$
37,277

 
$
34,013

 
$
73,366

 
$
71,615

Amortization of intangibles
(1,772
)
 
(1,771
)
 
(1,737
)
 
(3,543
)
 
(3,543
)
Stock-based compensation expense
(1,338
)
 
(1,197
)
 
(1,272
)
 
(2,535
)
 
(2,665
)
Non-GAAP sales and marketing
$
32,979

 
$
34,309

 
$
31,004

 
$
67,288

 
$
65,407

 
 
 
 
 
 
 
 
 
 
GAAP general and administrative
$
13,035

 
$
12,849

 
$
10,366

 
$
25,884

 
$
21,389

Stock-based compensation expense
(2,112
)
 
(1,909
)
 
(1,677
)
 
(4,021
)
 
(3,291
)
Non-GAAP general and administrative
$
10,923

 
$
10,940

 
$
8,689

 
$
21,863

 
$
18,098

 
 
 
 
 
 
 
 
 
 
GAAP total operating expenses
$
72,274

 
$
74,951

 
$
66,455

 
$
147,225

 
$
137,236

Amortization of intangibles
(1,772
)
 
(1,771
)
 
(1,737
)
 
(3,543
)
 
(3,543
)
Stock-based compensation expense
(4,568
)
 
(3,972
)
 
(3,722
)
 
(8,540
)
 
(7,574
)
Restructuring and other charges
(1,311
)
 
(2,678
)
 
(974
)
 
(3,989
)
 
(5,368
)
Litigation reserves, net
(35
)
 
(10
)
 
—

 
(45
)
 
2,690

Non-GAAP total operating expenses
$
64,588

 
$
66,520

 
$
60,022

 
$
131,108

 
$
123,441


Page 6


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
 
July 3,
2016
 
April 3,
2016
 
June 28,
2015
 
July 3,
2016
 
June 28,
2015
 
 
 
 
 
 
 
 
 
 
GAAP operating income
$
25,514

 
$
25,614

 
$
11,201

 
$
51,128

 
$
28,700

Amortization of intangibles
4,166

 
4,165

 
4,243

 
8,331

 
8,639

Stock-based compensation expense
5,019

 
4,411

 
4,058

 
9,430

 
8,406

Restructuring and other charges
1,311

 
2,678

 
974

 
3,989

 
5,368

Losses on inventory commitments due to restructuring
—

 
—

 
—

 
—

 
407

Litigation reserves, net
35

 
10

 
—

 
45

 
(2,690
)
Non-GAAP operating income
$
36,045

 
$
36,878

 
$
20,476

 
$
72,923

 
$
48,830

Non-GAAP operating margin
11.6
%
 
11.9
%
 
7.1
%
 
11.7
%
 
8.2
%
 
 
 
 
 
 
 
 
 
 
GAAP other income (expense), net
$
(332
)
 
$
(366
)
 
$
(343
)
 
$
(698
)
 
$
132

Gain on litigation settlements
—

 
(5
)
 
—

 
(5
)
 
—

     Loss pertaining to cost method investment
479

 
—

 
—

 
479

 
—

Non-GAAP other income (expense), net
$
147

 
$
(371
)
 
$
(343
)
 
$
(224
)
 
$
132

 
 
 
 
 
 
 
 
 
 
GAAP net income
$
16,034

 
$
16,589

 
$
3,667

 
$
32,623

 
$
11,678

Amortization of intangibles
4,166

 
4,165

 
4,243

 
8,331

 
8,639

Stock-based compensation expense
5,019

 
4,411

 
4,058

 
9,430

 
8,406

Restructuring and other charges
1,311

 
2,678

 
974

 
3,989

 
5,368

Losses on inventory commitments due to restructuring
—

 
—

 
—

 
—

 
407

Litigation reserves, net
35

 
10

 
—

 
45

 
(2,690
)
Gain on litigation settlements
—

 
(5
)
 
—

 
(5
)
 
—

     Loss pertaining to cost method investment
479

 
—

 
—

 
479

 
—

Tax effect
(2,960
)
 
(3,243
)
 
(3,028
)
 
(6,203
)
 
(5,599
)
Non-GAAP net income
$
24,084

 
$
24,605

 
$
9,914

 
$
48,689

 
$
26,209


Page 7


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
 
July 3,
2016
 
April 3,
2016
 
June 28,
2015
 
July 3,
2016
 
June 28,
2015
 
 
 
 
 
 
 
 
 
 
NET INCOME PER DILUTED SHARE:
 
 
 
 
 
 
 
 
GAAP net income per diluted share
$
0.48

 
$
0.50

 
$
0.11

 
$
0.98

 
$
0.34

Amortization of intangibles
0.12

 
0.13

 
0.12

 
0.25

 
0.25

Stock-based compensation expense
0.15

 
0.13

 
0.12

 
0.28

 
0.24

Restructuring and other charges
0.04

 
0.08

 
0.03

 
0.12

 
0.15

Losses on inventory commitments due to restructuring
—

 
—

 
—

 
—

 
0.01

Litigation reserves, net
0.00

 
0.00

 
—

 
0.00

 
(0.08
)
Gain on litigation settlements
—

 
0.00

 
—

 
0.00

 
—

Loss pertaining to cost method investment
0.01

 
—

 
—

 
0.01

 
—

Tax effect
(0.08
)
 
(0.10
)
 
(0.09
)
 
(0.18
)
 
(0.16
)
Non-GAAP net income per diluted share
$
0.72

 
$
0.74

 
$
0.29

 
$
1.46

 
$
0.75





Page 8


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

 
Three Months Ended
 
July 3,
2016
 
April 3,
2016
 
December 31,
2015
 
September 27,
2015
 
June 28,
2015
 
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and short-term investments
$
352,672

 
$
333,304

 
$
278,266

 
$
263,848

 
$
212,915

Cash, cash equivalents and short-term investments per diluted share
$
10.53

 
$
10.02

 
$
8.40

 
$
8.16

 
$
6.21

 
 
 
 
 
 
 
 
 
 
Accounts receivable, net
$
230,550

 
$
218,421

 
$
290,642

 
$
274,173

 
$
246,493

Days sales outstanding (DSO)
67

 
66

 
77

 
73

 
78

 
 
 
 
 
 
 
 
 
 
Inventories
$
207,841

 
$
215,307

 
$
213,118

 
$
170,013

 
$
188,668

Ending inventory turns
4.1

 
3.9

 
4.8

 
5.8

 
4.5

 
 
 
 
 
 
 
 
 
 
Weeks of channel inventory:
 
 
 
 
 
 
 
 
 
U.S. retail channel
8.8

 
8.8

 
8.4

 
9.2

 
7.0

U.S. distribution channel
5.0

 
5.6

 
5.7

 
7.9

 
10.1

EMEA distribution channel
3.8

 
4.4

 
4.6

 
5.3

 
4.8

APAC distribution channel
6.7

 
6.3

 
7.0

 
7.3

 
7.1

 
 
 
 
 
 
 
 
 
 
Deferred revenue (current and non-current)
$
32,973

 
$
29,732

 
$
33,331

 
$
34,154

 
$
31,116

 
 
 
 
 
 
 
 
 
 
Headcount
928

 
937

 
963

 
959

 
967

Non-GAAP diluted shares
33,493

 
33,269

 
33,110

 
32,335

 
34,308


NET REVENUE BY GEOGRAPHY
 
Three Months Ended
 
Six Months Ended
 
July 3,
2016
 
April 3,
2016
 
June 28,
2015
 
July 3,
2016
 
June 28,
2015
Americas
$
210,908

67
%
 
$
193,850

62
%
 
$
172,459

59
%
 
$
404,758

65
%
 
$
346,245

58
%
EMEA
51,653

17
%
 
64,505

21
%
 
67,993

24
%
 
116,158

19
%
 
157,102

26
%
APAC
49,094

16
%
 
51,901

17
%
 
48,330

17
%
 
100,995

16
%
 
94,592

16
%
Total
$
311,655

100
%
 
$
310,256

100
%
 
$
288,782

100
%
 
$
621,911

100
%
 
$
597,939

100
%

NET REVENUE BY SEGMENT
 
Three Months Ended
 
 
Six Months Ended
 
July 3,
2016
 
April 3,
2016
 
June 28,
2015
 
 
July 3,
2016
 
June 28,
2015
Retail
$
170,646

54
%
 
$
157,543

51
%
 
$
131,809

45
%
 
 
$
328,189

53
%
 
$
252,766

42
%
Commercial
73,671

24
%
 
68,432

22
%
 
63,017

22
%
 
 
142,103

23
%
 
135,748

23
%
Service Provider
67,338

22
%
 
84,281

27
%
 
93,956

33
%
 
 
151,619

24
%
 
209,425

35
%
Total
$
311,655

100
%
 
$
310,256

100
%
 
$
288,782

100
%
 
 
$
621,911

100
%
 
$
597,939

100
%


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