What Netlist (NLST) Said on Its Q3 Earnings Call

Key Points

• Third-quarter results surged: Revenue rose 149% to $105.1 million, and operating income reached $40.6 million. Net income was $85.4 million, though it included a $44 million tax benefit; licensing revenue and stronger product sales drove the improvement.
• Licensing revenue is set to climb: Netlist expects about $73 million in combined quarterly licensing revenue starting in Q4 from its Samsung and Micron agreements. It also expects product sales to rise, including initial sales under its Samsung supply agreement.
• Netlist plans to invest in AI memory: The company aims to accelerate development of HybriDIMM CXL and low-power MRDIMM products, and is considering select acquisitions. CEO Chuck Hong also identified SK hynix and other memory suppliers as potential future licensing partners.

Netlist OTCMKTS: NLST reported a sharp increase in third-quarter 2026 revenue and a return to profitability, driven by licensing revenue from its Samsung agreement and stronger demand for memory products used in artificial intelligence and data centers.

The company expects fourth-quarter operating income and product sales to rise substantially as a separate licensing agreement with Micron begins contributing revenue and sales of Samsung products commence under a supply agreement, Chief Financial Officer Gail Sasaki said on the earnings call.

Licensing and Product Sales Lift Results

Third-quarter net sales rose 149% to $105.1 million from $42.2 million a year earlier. The total included $44.9 million in licensing revenue under the Samsung agreement and $60.2 million in product sales, which increased 43% year over year.

Gross margin expanded to 65.5% from 4.4%, while product gross margin rose to 40% from 4%. Sasaki attributed the improvement primarily to licensing revenue, a focus on Netlist products including its Lightning ultra-low-latency memory line, and strong market conditions.

Operating income was $40.6 million, compared with a $7.2 million operating loss a year earlier. Net income reached $85.4 million, or $0.22 per diluted share, versus a net loss of $7 million, or $0.02 per share, in the prior-year quarter.

Reported net income benefited from a $44 million income tax benefit, primarily from the release of a valuation allowance on deferred tax assets, including net operating loss carryforwards. Sasaki said the adjustment reflected recent performance and an improved outlook for future taxable income.

Operating expenses increased to $28.3 million from $9 million, including intellectual property legal fees of $16.2 million, up from $5 million. Sasaki said legal costs were primarily associated with the Samsung and Micron litigation and settlements, and that the company expects those expenses to moderate to levels more consistent with the first quarter.

Samsung and Micron Agreements

Netlist signed a five-year strategic alliance with Samsung in August. Samsung licensed Netlist’s patent portfolio, while a separate supply agreement gives Netlist the right to purchase up to $300 million a year in Samsung DRAM and NAND at a competitive cost, Sasaki said.

Netlist expects to recognize $898 million in licensing revenue over the Samsung agreement’s term. That includes a $239 million gross upfront fee recognized over 20 quarters and a recurring gross quarterly fee of $32.9 million.

Under an agreement signed in early October, Micron licensed Netlist’s patent portfolio and purchased 10 million shares of the company’s stock. Netlist is set to receive $30 million in quarterly license fees from the fourth quarter of 2026 through the third quarter of 2031, totaling $600 million in cash. Revenue recognized under the agreement will be reduced by approximately $2 million per quarter in non-cash expense reflecting the stock acquired by Micron, Sasaki said.

Beginning in the fourth quarter, Netlist expects combined quarterly licensing revenue of $73 million from the two agreements, or $292 million annually. Sasaki said product sales should also increase substantially, supported by growing demand for Netlist products and initial sales under the Samsung supply agreement.

Netlist ended the third quarter with $327.7 million in cash, equivalents and restricted cash, up from $40.7 million at the end of the prior quarter, primarily because of Samsung’s initial payment. The company had no debt outstanding.

AI Memory and Future Licensing

Chief Executive Officer Chuck Hong said the company plans to invest in next-generation AI memory technologies and consider select acquisitions to expand in edge AI. He described memory as a bottleneck in AI infrastructure and said demand for high-performance memory currently exceeds global supply.

Hong said Netlist intends to accelerate development of HybriDIMM CXL and low-power MRDIMM products, including by recruiting design engineers. He identified AI inference’s key-value, or KV, cache as a potential application for the company’s Lightning products and for HybriDIMM CXL.

On future licensing, Hong indicated that hynix was a logical potential licensee after Samsung and Micron. He added that Netlist would pursue other significant memory suppliers and said the two completed agreements established benchmarks for the value of its intellectual property.

About Netlist (OTCMKTS:NLST)

Netlist, Inc. develops and supplies memory products and technologies for data-intensive computing. Its offerings include memory modules and memory subsystems used in servers, storage systems and other computing platforms. The company's products include NVVault and other solutions designed to support data protection and performance in enterprise systems. Netlist also develops memory architectures and holds patents related to memory technology, which it seeks to commercialize through product sales and intellectual-property licensing.

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