NETGEAR, Inc.

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, you will need to press star 1 on your telephone keypad. I would now like to turn the conference over to Mr. Eric Byland. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to Netgear's first quarter of 2026 Financial Results Conference Call. Joining us from the company are Mr. C.J. Probert, CEO and Mr. Brian Murray, CFO. The format of the call will start with commentary on the business provided by CJ, followed by a review of the financials for the first quarter and guidance for the second quarter provided by Brian. We'll then have time for any questions. If you have not received a copy of today's release, please visit Netgear's investor relations website at www.netgear.com. Before we begin the formal remarks, we advise you that today's conference call contains forward-looking statements. Forward-looking statements include statements regarding expected revenue, growth and operating margins, expenses, tax expense, and future business outlook. Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed on next year's periodic filings with the SEC. including the most recent Form 10-K. Any forward-looking statements that we make on this call are based on assumptions as of today, and NECIR undertakes no obligation to update these statements as a result of new information or future events, except as required by law. In addition, several non-GAAP financial measures will be mentioned on this call. A reconciliation of the non-GAAP to GAAP measures can be found in today's press release on our investor relations website.

this time i would now like to turn the call over to cj thanks eric and thank you all for joining our call we started 2026 with a solid quarter and i'm pleased to share that our transformation continues to gain meaningful momentum today i'll cover three topics first a recap of our q1 performance second the macroeconomic factors shaping our environment third an update on our transformation. Let's get into it. Q1 was another strong example of the streamlined execution we've worked hard to build. We delivered solid revenue while outperforming profitability expectations. Enterprise performed well and saw strong double digit end user demand growth in the US and EMEA. For consumer, While our newly launched Good, Better, Best Wi-Fi 7 lineup continues to perform well, as noted on our prior call, we're actively optimizing this business for gross profit given the memory challenges and continue to harvest our service provider business. These two intentional strategies are constraining the growth of our overall consumer top line. Nonetheless, revenue for our core consumer products grew 3% year over year. We also achieved another quarter of record non-GAAP gross margin driven by sustainable trends within our business. Specifically, the strengthening of our enterprise mix, efficiencies gained through our acquisition of the ProAD Managed Switch OS, and tighter, more disciplined supply chain execution. From an OpEx perspective, we remained disciplined as well. In Q1, we executed on a restructuring impacting roughly 5% of our employees, to help accelerate our transformation. While at the same time remaining strategic with our spend, we continue to invest in the transformational initiatives that will drive our long-term profitable growth. Our efforts continue to translate to the bottom line. Our expanding gross margin, combined with our OPEX discipline, allowed us to outperform our earnings expectations and improve non-gap profitability year over year. I'm proud of what the team has accomplished and the momentum that continues to build behind our transformation. Turning to the broader environment, there's three macro dynamics we want to address directly. Supply chain, AI, and the evolving regulatory landscape. We're pleased to share that our team has secured sufficient memory supply for virtually all of our 2026 production plans. a testament to the operational capabilities we built and the strength of our supply chain execution. While pricing for some of this memory may still fluctuate, we now have a good sense for the full-year impact of the memory shortage. As a reminder, the impact on our enterprise business is expected to be nominal, given its relatively higher ASPs and margins and our various mitigation strategies. we will see most of the impact from the memory shortage in our consumer business given the competitive dynamic of that market. Ryan will share the expected impact from memory in his remarks, though I'll say here that we're thrilled with the progress of our team's ongoing mitigation efforts. I want to spend a moment on AI because we believe it's one of the most important themes shaping our outlook, and frankly, one that positions Netgear particularly well. We view AI as a significant and growing tailwind for our business, and we see several distinct areas where next year will benefit. First, this is a remarkable time to be a hardware company that's actively expanding its value through software. The barriers to build and deliver great software experiences are decreasing significantly. And the combination of a strong and differentiated hardware foundation with rapidly improving software capabilities is a powerful one. Unlike more established companies that are burdened by legacy systems, entrenched processes, and technical debt, we can redesign our processes more freely because we're already in the midst of a significant transformation. We're building our software capability from the ground up at exactly the moment when AI is making it faster and more efficient to do so than ever before. We intend to take full advantage of this opportunity to maximize our competitive differentiation. Second, we're improving operational efficiency more broadly We're laser focused on implementing AI efficiency initiatives across the entire organization and capitalizing on this tailwind to deliver shareholder value. The fact that Netgear is driving a transformation where our number one value as a team is Dare to Transform enables us to reimagine how we work in a revolutionary, not evolutionary way. And this transformational mindset embedded within our team will strengthen our competitive advantage over time. To give a specific example of our momentum in this area, we recently completed a company-wide AI-themed hackathon that resulted in 125 submissions ranging from potential new product features to efficiency initiatives in G&A and operations. Many of these ideas are now in the process of being implemented. Third is how we deliver our customer experience. There's a significant amount of low-hanging fruit in how we serve our customers today, support being a prime example. And AI gives us the tools to address that quickly and at scale. Improving the customer experience is not just the right thing to do. It directly supports retention, drives our recurring revenue, and strengthens Netgear's reputation as the most trusted brand in our space. We have a lot of opportunity here and are moving with urgency. Fourth is on product performance and new use cases. Over the long term, we expect compute to increasingly shift to the edge and our products sit right at the edge. That creates a significant opportunity to enable use cases that simply weren't possible before AI. We're in the early days of understanding the full scope of what that means for our product roadmap, but our conviction is high and our teams are actively exploring what the future looks like for our customers. And finally, in our enterprise business, our dedication to the pro-AV market sets us apart. As others in the industry turn their attention to data center opportunities driven by AI adoption, we continue to listen closely to AV integrators and end users delivering the products and support that this market truly needs. So to put it simply, AI is not a threat to what we're building. It's an accelerant and our journey is just beginning. Moving on to the regulatory environment, in March, 2026, the FCC called for stronger safety and security standards for consumer routers based on a federal government risk assessment. We quickly became the first retail company to receive conditional approval under the new regulations. We're proud that our status as an independent US-based public company continues to position us as a highly trusted brand in this space and that our efforts in connection with the security and integrity of our supply chain are paying dividends. Under this conditional approval, we can launch new consumer routers and provide software updates to existing devices. While we receive this approval quickly, we've already seen a competitor also receive approval and it's expected that others will follow. And even without conditional approval, competitors are not restricted from selling existing foreign produced products in the market. As such, we continue to expect normal competitive activity in our consumer business in the near term, but also see an increased focus on security, supply chain integrity, and trusted brands as a medium and long-term tailwind for our consumer business. And now we'll share an update on our transformation, starting with our enterprise segment. We want to highlight three areas of progress that we're particularly excited about. First, our expansion to the broadcast vertical for ProAV continues to build momentum. Our manufacturing partner ecosystem grew by over 50 partners in the quarter, bringing our global total to 577. New and expanded broadcast partnerships with leading players, including Clearcom, Rydell, EVS, Ross Video, Grass Valley, and Labo, to name a few, further validates our position in this space and is a strong reflection of the industry's confidence in Netgear as a foundational platform for next-generation broadcast infrastructure. We're seeing growing interest in our ST2110-enabled audio and video switching solutions as broadcasters transition from legacy SDI to IP-based workflows. Adoption is accelerating as customers increasingly recognize Netgear as a uniquely focused on solving their AD challenges. We're seeing this translate to solid wins across live production, corporate studios, and mid-tier broadcast environments where ease of deployment and reliability are key differentiators. Our competitive position is strong and only strengthening with our planned roadmap and as the shift to IT-based studio infrastructures. continue to accelerate. Second is the transformation of our enterprise go-to-market capabilities. The leadership team we've assembled is truly world-class. We've hired sales, marketing, and support leadership with expertise from Cisco, Juniper, HPE, Microsoft, and Ruckus, to name a few companies that contribute to our team's pedigree. New sales leadership for EMEA was hired in the second half of last year And he is having a significant impact driving growth for that region. In the last few months alone, we've also hired new sales leaders for our enterprise networking and security businesses in the Americas and our first ever sales leader for Galatim. We also just recently added our first ever marketing leader for our enterprise business, and she's having a tremendous impact building our marketing capabilities for this business. In addition to the excitement of bringing this new team together, the validation of our strategy and market opportunity that comes from recruiting such a talented group is energizing. With key leaders now in place in the Americas and EMEA, the focus is shifting to building a similar capability in APAC, where we recently executed on a leadership change and plan to restructure the channel for this market. While we implement our transformation playbook for this region, we don't expect our APAC business, which represents less than 20% of our enterprise business top line, to contribute to our growth for the first few quarters of the year. We see a ton of potential in this region, and we're excited to make the changes needed to get this region back on an accelerated growth trajectory. On the partner front, the momentum behind our partner success program is real. We now have over 150 active go-to-market partners registered in our partner portal. We launched our MDF and VIP benefit modules in Q1, giving our most committed partners the tools, incentives, and engagement they need to grow with Netgear. Partner recruitment remains a top priority. We're actively expanding our apex tier and driving compliance and enablement across the network with over 1,000 certifications completed today. This is still early innings, but the foundation is in place and the trajectory is encouraging. Third is the momentum that's building behind our enterprise non-device revenue initiatives. As you'll recall from our investor day in November, We set mid and long-range targets to significantly expand the percentage of non-device revenue for our businesses. We have many sources of opportunity for delivering on these targets, including expanding our insight, security, support, and professional services businesses. While we're starting from a small base in enterprise, the progress we are making is exciting, and we're more confident than ever in delivering on those medium and long-range targets. Recently, we made great progress expanding the value proposition of our Insight Cloud Management solution, launching Insight 10.0 to empower our customers to manage their network infrastructure smarter and more efficiently than ever. This release was truly in the vein of Netgear delivering solutions that help our partners and customers succeed, enabling enterprise customers to reduce setup time, simplify navigation, and scale with confidence all while maintaining the privacy and safety of their connected devices. In the quarter, we also made great strides in building out our support and professional services offering by launching a structured portfolio of paid support and professional services with clear SLAs, guaranteed response times, and direct access to senior engineering expertise. The opportunity to expand our value proposition at higher margin revenue streams and improve the customer experience is more compelling than ever, and it positions Netgear as an industry player with all the tools to help customers succeed. Our acquisitions of VOG and Exium are proving to be essential elements of our transformation strategy, and I am confident we'll continue to see momentum here. Shifting over to our consumer business, we're executing on three primary growth initiatives. We're embarking on an important product innovation cycle, which includes the upcoming release of several new products over the course of the year. As we shared previously, as a first step in our commitment to the smart home, we're working with Google to implement the Google Home runtime in upcoming new product releases. What this means is that users will be able to control Matter Wi-Fi devices from their Google Home app, all enabled by Netgear. this is the first step in many we will take to better enable the smart home. Second, we're enhancing our recurring services platform in several ways to increase the tax rates, thrive renewals, and expand ARPU. As we mentioned at our investor day, we expect recurring revenue to exceed 25% of total consumer revenue in the long term. Third, We're leveraging our in-source software development capabilities and unique data insights into consumer network performance to develop a range of AI-enabled solutions that we believe will transform the user experience and make home networks more intelligent, adaptable, and resilient. With FCC conditional approval secured and our core products demonstrating positive year-over-year growth, we're seeing positive tailwinds in our consumer business despite the need to navigate near-term memory headwinds. In closing, Q1 was a strong start to what we expect to be a pivotal year for our transformation. We're executing with greater discipline, investing in the right areas, and seeing those investments begin to deliver in our margins, in our enterprise momentum, and in the growing recognition of Netgear as a trusted, differentiated partner across the industries we serve. The transformation is working, and the opportunities in front of us are larger than ever. I've never been more confident in our team or our trajectory, and I look forward to sharing more progress with you throughout the year. With that, I'll turn it over to Brian.