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 Bilan. 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 C.J., 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, gross and operating margins, expenses, tax expense, and future business outlook. Actual results or trends could differ materially from those contemplated by these forward-looking For more information, please refer to the risk factors discussed on NECU's periodic piling through the FCC, 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 next year 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. At 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 U.S. and EMEA. For consumer, while our newly launched Good, Better, Best Wi-Fi Southern 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 Pro-AD managed switch OS, and tighter, more disciplined supply chain execution. From an OpEx perspective, we remain 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 ASGs 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, so 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 next year 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 Neck Gear 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 gna 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 and 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 Nicky'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 aims 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-eating 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 are building. It's an accelerant and our journey is just beginning. Moving on to the regulatory environment, in March 2026, the SEC 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 are proud that our status as an independent, U.S.-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 have 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 ProAD 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 Lavo, to name a few, further validates our position in this space and is a strong reflection of the industry's confidence in that year 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 uniquely focused on solving their AV challenges. We're seeing this translate to solid wins across live production, corporate studios, and mid-tier broadcast environments where our 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 video 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 the LATAM. 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 percent 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 and 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, add 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 axiom are proving to be essential elements of our transformation strategy and i'm confident we'll continue to see momentum here shifting over to our consumer business we're executing on three primary growth initiatives first 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 And 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 attach 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.

Thank you CJ and thank you everyone for joining today's call. Led by strength in our Pro-EV managed switch products within our enterprise segment, we delivered revenue at the high number guidance range. In tandem with ongoing discipline operational execution, we drove non-GAAP gross margin of 41.7%, yet another all-time high for Netgear, and I'm thrilled to share that this marks the eighth consecutive quarter where non-GAAP operating margin exceeded the high endeavor guidance range, reflecting continued progress in our transformational efforts. For the quarter ended March 29, 2026, revenue was $158.8 million, down 2% year-over-year and down 13% on a sequential basis due to seasonality in our consumer business and the current period being nearly a week shorter than Q4. The first quarter's performance was driven by continued strength in enterprise, where we saw year-over-year growth and end-user demand of double digits in the Americas and AMIA regions, and year-over-year growth in both ASPs and units of Pro AV managed switch products. We also saw 3% year-over-year growth in our core portion of our consumer business, while the service provider portion of this business declined 32%. As a reminder, beginning in Q4, we are reporting two business segments, with the reporting of our mobile products being included in our consumer business. We will continue to supplement reporting of service provider revenue, which also includes sales of our cable modem and gateway products sold in retail, which enable services offered by cable operators. This revenue call-out will allow investors to isolate these declining businesses and their assessment of Netgear and our transformation. We delivered $83.8 million of revenue in the enterprise segment for the first quarter, down 6.2% sequentially and up 5.8% year-over-year. Thanks to the excellent execution of our team and collaboration with key supply chain partners, we made further progress in the quarter on mitigating the supply constraints around certain managed switched products. Consequently, the revenue mix of our products from the higher margin enterprise segment grew once again, coming in at 53% of total revenue, an improvement of 390 basis points year over year. Taking in conjunction with improvements from a license acquisition of the OS that powers our Pro-AD line of managed switch products, this was the driving force that led to the record consolidated gross margin in the quarter and helped driver operating margin outperformance. In Q1, the consumer business delivered net revenue of $75 million, down 9.5% on a year-over-year basis and down 19.4% sequentially. Given the memory shortage and related cost increases of various components we are optimizing this business for gross profit domestically we saw softness in the u.s retail market in part due to aggressive promotional activity from some of our competitors we saw positive benefits of our good better best wi-fi 7 lineup and continued growth in our recurring revenue services which drove growth of approximately three percent in the core consumer portion of the business as compared to the prior year period Sales to service providers and associated products were down approximately 32% as we harvest this portion of the business. Now moving on to an update on our recurring subscriber base. The team has made progress with our strategy to transform these offerings by developing a plethora of value-add improvements slated for launch in the coming year. We continue to believe that focusing on increasing our recurring subscriber base is the right strategy to add high-margin revenue to both business segments, while differentiating our offerings in the market. As CJ mentioned, we were also making great strides with our non-device revenue initiatives in the enterprise segment. On the consumer side, we made another incremental improvement to our conversion rate while seeing ASPs and renewals rise. These factors were strong contributors to growing our ARR by 12% year-over-year, reaching $39.7 million in the quarter. We remain confident we can grow our highly profitable ARR over time, and I'm pleased to share that we exited the quarter with 559,000 recurring subscribers. From this point on, my discussion points will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP is detailed in our earnings release distributed earlier today. Our gross margin, supported by a favorable mixed shift towards enterprise, came in at 41.7% in the first quarter of 2026. once again an all-time high in the seventh consecutive quarter of sequential gross margin expansion this marked a 670 basis point increase compared to 35 percent in the prior year comparable period and the 50 basis point increase compared to 41.2 percent in the fourth quarter of 2025. Relative to the year ago period our gross margin in the current period benefited from an improved mix of our higher margin enterprise business, an increased mix of Wi-Fi 7 products, and improved returns experience within the consumer business. As a reminder, in the fourth quarter we entered into a strategic agreement to acquire a perpetual license for the operating system that powers our AV line of managed switches. Acquiring this technology improved our overall gross margins by roughly 150 basis points in the first quarter as compared to the year ago period, but more More importantly, it continues to up-level our ability to bring greater value to the AV ecosystem faster than we could have otherwise. Rolling down to the profitability of our two business segments, our enterprise segment remained quite profitable on a contribution margin basis, expanding margins by 100 basis points sequentially, 160 basis points as compared to the year-ago period. Enterprise gross margin reached another record in the quarter at 52.7%, up 640 basis points year-over-year, driven again by strong demand for our pro-AV managed switches, an improved regional mix, and a divided aforementioned license acquisition. On the consumer side, while we experience some demand softness in an extremely aggressive pricing environment, improved mix and operational discipline, along with a focus on prioritizing margin over top line helps offset these pressures. The consumer segment ended the quarter with gross margin of 29.4 percent for a year-over-year improvement of 520 basis points. The profitability was once again aided by an improved mix of Wi-Fi 7 products along with a lower service provider mix and improved returns experience with some offset from increased memory costs. We were able to improve contribution margin within the consumer business by 160 basis points year-over-year due to the improved gross margin coupled with thoughtful expense management, which enabled us to maintain our margin expansion trajectory year-over-year despite mounting the impact from rising memory costs. Total Q1 non-GAAP operating expenses came in at $64.6 million, up 8.8% year-over-year and down 6.7% sequentially. Our headcount was 786 at the end of the quarter, up from 784 in Key 4, but lower than we had targeted due to the timing of hiring. We remain dedicated to the development and expansion of Netgear Talent, with the aim of supporting our enterprise business through the insourcing of software development and enhancing our go-to-market capabilities. Our non-GAAP R&D expense for the first quarter was 12.8% of net revenue, as compared to 10.9% net revenue in the prior comparable period and 11.9% of net revenue in the fourth quarter of 2025. To continue our technology and product leadership, we are committed to significant but cost-effective investment in R&D while balancing hiring with capitalizing on the efficiency gains from AI within software development. Overall, the combination of better than expected revenue and disciplined cost control enabled us to again deliver non-GAAP operating margin above the high of our guidance range. Our Q1 non-GAAP operating income was $1.7 million, resulting in non-GAAP operating margin of 1% for an improvement of 260 basis points compared to the year-ago period and a decline of 230 basis points sequentially. Our non-GAAP tax expense was approximately $1.4 million in the first quarter of 2026. Looking at the bottom line for Q1, we reported non-GAAP net income of approximately $1.9 million, resulting in a non-gap income of six cents per share. During the quarter, $1.6 million cash was provided by operations, which brings our total cash provided by operations over the trailing 12 months to $12 million. We used $3.8 million in purchasing property and equipment during the quarter, which brings our total cash used for capital expenditures over the trailing 12 months to $22.9 million, which was elevated from our normalized levels due to improvements on our new corporate headquarters. Starting to the balance sheet, we ended the first quarter of 2026 with $296.5 million in cash and short-term investments, down $26.5 million from the prior quarter, primarily due to our $20 million in discretionary stock repurchases. In Q1, we repurchased approximately 929,000 shares of NECUR common stock at an average price of $21.53. With an additional $75 million just added to our repurchase authorization by our board of directors, inclusive of the amount carried over from our previous authorization, we have approximately $89 million reserved on our updated authorization, and our fully diluted share count is approximately 28.7 million shares as of the end of the first quarter we're committed to returning capital to our shareholders and plan to continue to authentically repurchase shares in future periods overall we are pleased with our start to 2026 we exceeded expectations on the bottom line improved our revenue mix towards higher margin portions of the business and maintained strong operational discipline we remain focused on executing our strategy to drive profitable growth in enterprise in consumer we are focused on driving growth in our core product lines, executing on our roadmap, including the upcoming anticipated release of the Orbeez Smart Home Hub, and further penetrating our install base with higher margin recurring revenue services. Before I get into our Q2 outlook, I would like to take a moment to touch on the memory situation and how many affect us in the year ahead. I'm pleased to share that the nimbleness and shrewd operational acumen of our team have enabled us to secure sufficient DDR4 memory supply for nearly all of our 2026 planned production. We have recently increased pricing on a broad portion of our enterprise business product portfolio, which is expected to mitigate the margin impact to this business. We have also worked with consumer business channel partners to offset some of the memory cost headwinds in the back half of the year. However, while we have secured supply, we are still expecting increased pricing for supply in the back half to have an off-sized effect on our consumer business the impact to our combined q1 gross margin was approximately 100 basis points and we believe that our mitigation efforts that begin to kick in during the second quarter will neutralize the impact of the incremental cost in q2 while the cost trajectory will continue upwards of the second half we expect our mitigation strategies will help neutralize a meaningful portion of the incremental impact to our profitability we are currently expecting a net further 200 basis point impact to our margins I'll now cover Outlook for the second quarter of 2026. Within Enterprise, in-user demand for our Pro-AV line of managed switches is expected to remain strong. We expect the memory impact to be nominal for our Enterprise business given the relatively higher ASPs and margins, an offset coming from our recent price increases. On the consumer side, while we have a broader product portfolio to address the market, we will continue to prioritize gross profit over revenue with the rising cost of memory, which we expect to bill throughout the year. For service provider and related products, we expect revenue to be around $18 million, which will be a decline of approximately 33% as compared to the second quarter of 2025. Accordingly, we expect second quarter net revenue to be in the range of $150 million dollars to 165 million dollars in the second quarter we expect our mitigation efforts with greater benefit to the enterprise business to counter the rising cost of memory accordingly we expect our second quarter gap operating margin to be in the range of negative 8.4 percent to negative 5.4 percent and non-gap operating margin to be in the range of negative one percent to 2%. Our gap tax expense is expected to be in the range of $800,000 to $1.8 million. And our non-gap tax expense is expected to be in the range of $500,000 to $1.5 million for the second quarter of 2026. And with that, we can now open it up for questions.

Thank you. And once again, everyone, if you do have a question today, please press star 1 on your telephone keypad. The Our first question is from Tori Svanberg from Stiefel.

Yes, thank you CJ Bryant and congratulations on the continuous progress here. I guess my first question is on the top on guidance for Q2. It's a pretty wide range. I assume that obviously has something to do with the, you know, portfolio mix management here, but do you help us understand a little bit, you know, what the strategy is going to be with that range. I mean, you gave us guidance for the service provider revenue, but I assume the non-service provider revenue and consumer will still be down with the enterprise business continuing to grow sequentially. I think I have that right, but, you know, if you could add any color, that'd be great.

Yeah, Tori, I can start. Thank you for the question. The range that we're giving is pretty consistent with what we have been providing, about a $15 million range on the top line um maybe just to add some additional context and color as you noted we did call out specifically the service provider portion of the business which we said we are harvesting it's uh 18 million dollars is the expectation for q2 which is down a couple of million dollars from the q1 period i would say we would expect total consumer to be roughly in line with the levels that we saw in q1 which would imply that the core portion would actually be up sequentially uh so obviously we are optimizing that business for gross profit at the moment just given the memory situation but i would i would call out that prime day um in most years you would see some revenue lift in the second quarter uh those those uh uh offerings would typically happen at the very beginning of July, but you would see the revenue lift for the manufacturer shipping in in the Q2 period. This year, we are hearing that the event actually may start at the tail end of our Q2 period, but that will be the driver for the sequential lift there. And then depending on kind of where you come out in terms of the range that we provided, the balance would be on the enterprise side. We've been pretty thoughtful in our guidance. As I mentioned, we have implemented price increases broadly across the enterprise portfolio in the neighborhood of 5% to 6%. And we're cautiously expecting a little bit of volume offset to that. We could get surprised on the other side. Obviously, we touched on this before that, broadly speaking, in the markets that we play in on the enterprise side, it is pretty common for manufacturers to be increasing their pricing. And thus far, it looks very promising that the market is digesting those. But that's kind of the thoughts that went into providing that top line guidance.

Yeah, that's really helpful. And as my follow-up for you, CJ, in your preamble, you talked quite a bit about how you're leveraging AI, you know, throughout this transformation. And I know it's going to be very difficult for you to share how that impacts you financially. But, you know, is there any metrics you can share with us, you know, as far as, you know, how much more would it cost you, you know, to develop software faster? You know, could you potentially get to the recurring software revenue targets faster with the use of AI? I mean, anything that you could share with us financially when it comes to those initiatives that you are doing internally now with AI tools?

Yeah. Hey, Torrey. Sounds good. But we're furthest ahead on the software development side. As I said in my prepared remarks, we're kind of in a unique position there, right? We're insourcing software. We're building our capability at a time when these capabilities are coming online. So it gives us a real advantage. We're not having to change like legacy process as much as you would if you were more established in that regard. And so since we've been leaning into the AI adoption, first of all, across our engineering team, it's been adopted 100%. So there's no outliers. Everybody is using AI in their development. Of course, that varies a little bit by team. But our estimates so far that we're seeing 40% to 50% productivity gains, we measure all sorts of stuff to come to that conclusion. you know, times from code to deploy, pull request velocity, things like that. And for now, our focus has been on taking advantage of those efficiencies to accelerate the work that we're doing across our businesses. So where we have a leadership position like AV, we want to strengthen and expand on that. And, of course, on the embedded software side there, we recently acquired the OS for our ProAV, and that's another area where we get, you know, a real benefit from AI as we onboard that capability and the teams that are responsible for that. and so we're not we're not right now is um of course we're being very disciplined from an opx perspective but we're not looking to uh you know bank those savings per se we're looking to accelerate our roadmap extend our leadership like i said in av and in other areas where we're transforming like on the enterprise networking and security side it just allows us to catch up and, you know, eventually surpassed competition. We expect it to allow us to do that. And, you know, we're being very focused and customer-centric in our development. And so, again, we're just, you know, it's like a fascinating time to be a hardware company that's building this muscle, and we're very fortunate from a timing perspective.

Yeah, that's a very helpful call. Thank you, CJ.

Up next is Adam Tyndall from Raymond James.

Okay, thanks. Good afternoon. CJ, I just wanted to start on the recent regulatory environment, and maybe I'll set the context. I think investors had thought about an opportunity for the broader market, for the consumer market leader there to potentially be banned that would unlock somewhere in the neighborhood of $300 million or $400 million of incremental potential revenue for the remaining competitors. Obviously, Netgear potentially being in the pole position to capitalize on that opportunity. Maybe if you could just take a second to summarize what we've learned in the recent regulatory environment, what else we still may hear in the timeline for that, and how you're thinking about the opportunity for Netgear's consumer business now.

Yeah, great question, Adam. Um, so the first thing I'd say is, um, we're quite supportive of and happy to see the new SEC regulations, um, reading between the lines, the primary motivation of the administration does seem to be around, you know, security in our supply chain, national security. And if you look at what's specifically required to get conditional approval, which is what allows you to launch new products into the market, which is what allows you to update the software on your existing products, there's three requirements. The first two are very much about your leadership team, your corporate structure, your affiliations with government entities, et cetera, et cetera. and so i think if you you know what we've been saying all along about netgear and our trusted position is a us-based public company that's very focused on security and we've taken very decisive measures to secure our supply chain i think that's why you know we received conditional approval first and so quickly because it's very easy for us to answer those questions uh so in the near term it's hard to predict who receives conditional approval so so far and we compete against a number of companies so far us and euro on the you know retail consumer side have received approval haven't seen anybody else uh receive approval yet uh and we don't have crystal ball to predict who will who will get that uh permission um so in the near term you know because companies that don't have approval despite the fact that you have the software update restriction that kicks in in march 2027 they can continue to sell their existing products so in the near term we don't see you know a huge tailwind from this but in the medium and longer term uh you know depending on where conditional approval lands right there's a lot of long tail competition from you know foreign countries as well that would be impacted by this um we think this is a pretty significant tailwind for a trusted company like neck gear um and so we're we're excited about it and um uh hopefully that answers your questions let me know if you any follow-ups no that that's uh helpful um i guess maybe the follow-up would be for brian and i wanted to go back to the topic of memory and costs obviously you guys did a nice job of securing um the memory through 2026. you gave some comments and i know it's helpful kind of like by a quarter

but maybe i don't know if it's maybe a simpler way for us to think about some sort of sensitivity any analysis on the rising costs, meaning like if you had not secured memory throughout 2026, what would the P&L look like or what would margins look like? You know, let's say this doesn't recur in 2027 and memory costs stay exactly where they're at, just so we can kind of level set the level of sensitivity on cost, anything to dimensionalize that would be helpful.

Yeah. Yeah, let me start, I guess, by just rehashing kind of what the impact, our view at this point, what we think the impact is going throughout the year by quarter. As I said, about 100 basis point impact to our gross margins in the first quarter. The impact on the gross basis is ramping as the year progresses. We do believe that our mitigation efforts that are kicking in in the second quarter will pretty much neutralize any additional impact in the second quarter. And then as we look to the back half of the year, based on what we see today, we think there's probably a further headwind of about 200 basis points to gross and operating margins as a result of the ramping memory cost. um we do think we just point out that i think most of the models out there um from the street are reflecting this and you know we tried to get in front of this in january we obviously have better information today especially as it relates to securing supply uh but overall we think the the estimates that are out there for the most part uh in the second half address this um what it would have been otherwise. I would just echo again the execution of the team here was phenomenal, developing these direct relationships we've touched on before. Our historical model, we would have outsourced and leveraged our ODM partners to procure memory and have those relationships, which didn't surface in this environment. We've been able to develop great relationships with key partners here very quickly. And as a result, we are getting a high percentage of our memory is via direct OEM purchases. If we were subject to being in the spot market, it would be significantly more. Hard to quantify what the impact would be. Obviously, the cost of memory would be higher, whether or not we could actually get access to the level of supply to meet our current demand outlook and what the impact on top line would be. I would be guessing at this point, I would just say that we're very pleased that we're in a position to sit here and say that we think We've got the planned production covered for 26, and supply access will not be an impact to our top line. And, you know, the pricing, again, is something that we're navigating here. And because of these direct relationships, I think we're faring much better than we could have otherwise.

And it sounds like you're obviously successfully mitigating the enterprise side through price increases, which is understandable. and and you know i think you when you quantified the the price increase five percent or so i think you said just correct me if i'm wrong that's a lot lower than what we're hearing from other vendors across enterprise hardware in particular um you know some are you know magnitudes greater than that i guess the question might be for cj do you see kind of further opportunity i know it's early you kind of are just implementing the first price increase but do you see further opportunity for price increases beyond this in enterprise? How are you thinking about that?

Yeah, good question, Adam. We would concur that we were on the lower end of that. Part of that ties to our value proposition and the work that we're doing to, especially on the enterprise networking and security side, build momentum there, build share. and uh we we would fully acknowledge that um there likely is future opportunity however we're balancing that out with you know building momentum back into some of these businesses that were uh we're transforming makes sense thank you we'll go back to tori swanberg from stifle thank you um i just had some clarification questions on the 200 basis points impact um

in the second half. So, Brian, I, you know, we should assume that that 200 basis points assumes that the mix stays constant because, you know, obviously, you know, if the mix of enterprise is higher than 50 to 33%, the impact will be lower.

And then second of all, the starting point for that 200 basis points, that would be, would that be as of Q1 of this year or would it be as of Q4 of last year because obviously you talked about the 100 additional and then another 200 so just wanted to clarify that thanks yeah i would say the relative basis should be to q1 of this year i think as we just guided even as i i addressed your question with regards to the mix and the top line movements and the guidance for q2 that was largely stirring at the midpoint would be a very similar mix of enterprise that we would have experienced in q1 um and i did say that we would neutralize any additional memory impact in the second quarter so the 200 basis points for the second half is relative to to what you're seeing in the first half um yeah what was the first part of your question was yeah i mean i was i was just you know uh asking about it in the context of mix right?

Because as you said, you are managing the consumer revenue to optimize profitability. So, you know, that 200 basis point comment for the second half of the year, that assumes that the mix between enterprise consumers stays relatively constant versus the first half. I guess that was my main question.

I would say it this way. It is factoring in anticipated mixed changes. Typically, you would see consumer elevated in the second half of the year just from a seasonality standpoint. That may be more muted at this point, just given that we're optimizing for gross profit. But my steer of the second half of the 200 basis points is net of everything. We talked briefly about the consumer mitigation efforts. We'll start to kick in in the second half of the year, but 200 basis points includes all of those factors on a consolidated basis.

Understood. Thank you.

And everyone, at this time, there are no further questions. I will hand the call back to CJ Prober for any additional or closing remarks.

Just thanks again for joining the call, and big thank you to the Global Net Year team for delivering another great quarter.

Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation today, you may now disconnect.