NETGEAR — Third Quarter 2026 Earnings Summary

Financial Performance:

• Consolidated net revenue was $167.3 million, a 9.3% decrease year over year.
• GAAP gross margin was 40.1%, an increase of 100 basis points year over year; Non-GAAP gross margin was 41.3%, an increase of 170 basis points year over year.
• GAAP operating income was $(13.7) million compared to $(7.1) million in the prior year quarter; Non-GAAP operating income was $3.3 million compared to $3.8 million in the prior year quarter.
• GAAP EPS was $(0.45) compared to $(0.17) in the prior year quarter; Non-GAAP EPS was $0.13 compared to $0.12 in the prior year quarter.
• Enterprise segment revenue was $90.7 million (down 0.1% YoY), accounting for over 54% of total revenue and approximately 70% of non-GAAP gross profit.
• Consumer segment revenue was $76.6 million (down 18.2% YoY).
• Annual Recurring Revenue (ARR) from subscription and services increased approximately 12% year over year to $42.5 million.
• The company ended the quarter with over $242 million in cash and short-term investments.
• Deferred revenue (current and non-current) was $29.6 million as of September 27, 2026.
• Net cash used in operating activities for the nine months ended September 27, 2026, was $12.3 million.

Guidance and Future Outlook:

• Fourth-quarter 2026 net revenue is expected to be between $160 million and $175 million.
• Service provider and related products revenue is expected to be approximately $17 million in Q4, representing an approximate 28% year-over-year decline.
• Fourth-quarter GAAP operating margin is expected to be between (8.7)% and (5.7)%; Non-GAAP operating margin is expected to be between 0% and 3%.
• Fourth-quarter GAAP tax expense is expected to range from a benefit of $0.5 million to an expense of $0.5 million; Non-GAAP tax expense is expected to range from zero to $1.0 million.
• Management anticipates approximately 150 basis points of consolidated gross margin pressure in Q4 compared to the prior quarter due to rising memory and transportation costs.
• Manufacturing constraints are expected to persist into the first quarter of 2027, with production levels expected to return to normal by Q1 2027.
• Revenue growth in the near term is expected to fall short of customer demand due to manufacturing execution issues.

Business Segments and Product Lines:

• Enterprise: Non-GAAP gross margin expanded 220 basis points year over year to 53.2%. End customer sell-through increased approximately 6% year over year globally, led by double-digit growth in managed switch products. Enterprise backlog exited Q3 more than 2.5 times higher than the end of Q2. A price increase for Enterprise products is scheduled to take effect in November.
• Consumer: Non-GAAP gross margin was 27.2% (down 120 basis points YoY). A restructuring was implemented in Q3 to drive efficiencies, with cost reduction benefits expected to begin in 2027. A price increase for Consumer products is scheduled to take effect in early 2027.
• Subscription and Services: Recurring revenue within the home networking business grew 12% year over year.
• ProAV: The ProAV line of managed switches is driving strong underlying demand and double-digit growth in sell-through.

Market and Competitive Landscape:

• End customer demand remains strong in the Enterprise segment, particularly in the Americas and Europe.
• Management cites regulatory tailwinds in the U.S. that could positively influence the competitive landscape for home networking products.
• NETGEAR's position as a trusted U.S.-based company with a focus on security is viewed as a foundation for capitalizing on regulatory changes.
• Competitive pressures and rising component costs are expected to persist in the near term.

Risks and Challenges:

• Manufacturing challenges at a key production partner have constrained product availability and topline revenue.
• Rising component costs, specifically memory, and increasing transportation costs associated with production recovery efforts are pressuring margins.
• Elevated cost of supply and pricing leverage in the Enterprise category have necessitated price increases.
• Uncertainty surrounding manufacturing execution and product mix timing creates risk for near-term gross margin performance.
• Future demand for products and services may be lower than anticipated.
• Potential delays in manufacturing and distribution of new and existing products.

Management Commentary and Tone:

• CEO CJ Prober expressed encouragement regarding the transformation into a software-differentiated, Enterprise-led company, noting that underlying fundamentals are improving despite supply constraints.
• CFO Bryan Murray highlighted the structural shift toward a more profitable business model, with Enterprise contributing significantly to gross profit.
• Management remains confident in the strategic direction, focusing on translating progress into sustainable growth, greater profitability, and long-term shareholder value.
• The tone reflects a focus on financial discipline, optimizing the Consumer segment for gross profit, and restoring reliable product availability.

Other Key Points:

• Q3 2026 share repurchases totaled $15 million, bringing cumulative repurchases since the beginning of 2024 to over $131 million.
• The Enterprise backlog is at an elevated level, more than 2.5 times higher than the end of Q2.
• Headcount was 819 as of September 27, 2026.
• Days sales outstanding (DSO) was 85 days as of September 27, 2026.
• Ending inventory turns were 2.4 for the quarter ended September 27, 2026.
• A price increase for Enterprise products will take effect in November 2026.
• A price increase for Consumer products will take effect in early 2027.