NASDAQ:EXTR Extreme Networks Q1 2024 Earnings Report $17.85 +0.14 (+0.79%) Closing price 07/25/2025 04:00 PM EasternExtended Trading$17.86 +0.00 (+0.03%) As of 07/25/2025 05:38 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast Extreme Networks EPS ResultsActual EPS$0.25Consensus EPS $0.20Beat/MissBeat by +$0.05One Year Ago EPSN/AExtreme Networks Revenue ResultsActual Revenue$353.14 millionExpected Revenue$349.95 millionBeat/MissBeat by +$3.19 millionYoY Revenue GrowthN/AExtreme Networks Announcement DetailsQuarterQ1 2024Date11/1/2023TimeN/AConference Call DateWednesday, November 1, 2023Conference Call Time8:00AM ETUpcoming EarningsExtreme Networks' Q4 2025 earnings is scheduled for Wednesday, August 6, 2025, with a conference call scheduled on Thursday, August 7, 2025 at 8:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Extreme Networks Q1 2024 Earnings Call TranscriptProvided by QuartrNovember 1, 2023 ShareLink copied to clipboard.Key Takeaways Extreme delivered Q1 FY24 with 19% revenue growth and 75% EPS growth, driven by 30% YoY ARR increase to $141M and 38% YoY SaaS deferred revenue growth, but offered a revised near-term outlook as macro headwinds emerged. The higher interest rate environment and economic challenges in key markets like Germany lengthened sales cycles and pushed out orders, creating a channel “air pocket” as partners digest backlog; management realigned resources to sustain a high-teens operating margin and target >25% EPS growth for FY24. Strategic initiatives—up-market expansion, APAC growth, certifications for regulated industries, private subscription offers for service providers, and licensing all devices on the Extreme Cloud platform—coupled with 0 Trust and AI/ML enhancements, are expected to drive ARR expansion and ARPU. Extreme’s differentiation rests on three pillars—operational simplicity via cloud-deployed campus fabrics, unmatched flexibility with multi-cloud choice and simple licensing, and actionable insights from AIOps and digital twin technologies—enabling zero-touch provisioning and major Opex reductions. For Q2 FY24, Extreme guides revenue of $312M–$327M, gross margin of 60.2%–62.2%, operating margin of 15.4%–17.3%, and EPS of $0.26–$0.31, while expecting mid-to-high single-digit full-year revenue growth, ~30% recurring revenue, and long-term mid-teens revenue growth with mid-20s operating margins. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallExtreme Networks Q1 202400:00 / 00:00Speed:1x1.25x1.5x2xThere are 11 speakers on the call. Operator00:00:00Good day and thank you for standing by. Welcome to the Extreme Networks First Quarter Fiscal Year 20 24 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stan Koeffler, Vice President of Corporate Strategy and Investor Relations. Operator00:00:40Please go ahead. Speaker 100:00:42Thank you, Abigail. Good morning, everyone, and welcome to Extreme Networks' Q1 2024 earnings conference call. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations. With me today are Extreme's President and CEO, Ed Meyercord and CFO, Kevin Rhodes. We just distributed a press release and filed an 8 ks detailing Extreme Networks' financial results for the quarter. Speaker 100:01:05For your convenience, a copy of the press release, which includes GAAP to non GAAP reconciliations is available in the Investor Relations section of our website at extremenetworth.com along with our earnings presentation. Today's call and our discussion may include forward looking statements based on our current expectations about Extreme's future business, financial and operational results, Growth expectations and strategies, all financial disclosures on this call will be made on a non GAAP basis unless stated otherwise. We caution you not to put undue reliance on these forward looking statements as they involve risks and uncertainties that can cause actual results to differ materially from those anticipated by these statements. These risks are described in our Risk Factors in the 10 ks report for the period ending June 30, 2023 filed with the SEC, And any forward looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them except as required by law. Following our prepared remarks, we will take questions. Speaker 100:02:03And now, I will turn the call over to Extreme's President and CEO, Ed Meyercord. Speaker 200:02:10Thanks, DeAnne, and thank you all for joining us this morning. Extreme delivered another strong quarter with revenue growth of 19% and EPS growth 75%. We continue to move up market and the dollar value of deals over $1,000,000 continue to grow quarter over quarter. Cloud adoption remains strong on 30% year over year ARR growth to $141,000,000 and SaaS deferred revenue 38% year over year. Customer retention metrics remain high, a testament to our customers' loyalty and preference for our industry leading solutions. Speaker 200:02:46We outpaced overall market growth in the quarter and expect continued share gains in fiscal 2024 in our core business. Our new go to market initiatives outperformed in the quarter as well. This includes expansion across APAC, certifications in regulated industries like to sell the enterprise to large service providers with a private subscription offer. In addition, we have a plan to license All network devices connected to our evolving Extreme Cloud platform, this will deliver even greater simplicity, value and flexibility Beyond the cloud management capabilities we offer today and create more stickiness for our SaaS business. Our strategic initiatives around differentiated 0 Trust posture, expanded machine learning and AI capabilities are expected to drive expansion, ARR growth and average revenue per user. Speaker 200:03:48At the end of fiscal Q1, we felt the impact of the macro environment trends in our industry and lowered our outlook for near term top line growth. The higher interest rate environment and economic challenges in some of our larger markets like Germany, lengthened sales cycles and pushed out a larger amount of end of quarter orders in Q1 than we would normally expect. Our channel partners are digesting a large volume of backlog release And focusing on network deployment slowing down their current ordering. And as a result, we don't expect run rate business to ramp as quickly as anticipated. In light of what we would call an air pocket of demand and decision making, leading to our revised growth outlook for the year, We took immediate action to realign resources to drive higher productivity and profitability. Speaker 200:04:40As a result, we continue to expect high teens operating margin in fiscal 2024 that will allow us to grow our EPS by over 25% during the year. Our funnel of opportunities continues to grow, up double digits on a year over year basis as our underlying business and competitive position remain strong. Over the long term, we expect to return to a mid teens top line growth outlook and a mid-20s operating margin. And here's why. Customers tell us they're tired of complexity, inflexibility and the high costs associated with the old networking models from the larger networking companies. Speaker 200:05:21They choose Extreme because we set the bar for modern networking With a combination of innovative and flexible technology, licensing and deployment simplicity and a focus on driving impactful business outcomes, Customers view their network as a strategic asset to enhance operations, power and scale new services and reduce business risk, especially cybersecurity risk. Our customers choose Extreme for 3 primary reasons. First is operational simplicity, That is driving IT productivity, network availability, ease of use, improving both time to value and total cost of ownership for their networking investment. We're the only networking provider that can deploy campus networking fabrics from our cloud. This makes moves, adds and changes to networks simple and seamless, allows customers to segment networks And provides unmatched security and resiliency. Speaker 200:06:18While fabrics are common in data center environments, we're the only competitor who can bring these services to the dynamic campus environment orchestrated through our cloud. We create 1 network, 1 cloud for customers to remove the complexity of managing their entire network infrastructure. 2nd, we offer unmatched flexibility. We offer cloud choice, Public, private, hybrid and edge cloud deployments that can be managed through a single interface. Our universal switches offer OS choice And deployment options. Speaker 200:06:52We have the industry's simplest licensing. Unlike competitors, we don't require our customers to hire full time employees just to manage licenses. And finally, we're the only networking vendor that can manage a mixed environment without requiring them to rip and replace All their infrastructure at once as they modernize. 3rd, our cloud solutions offer actionable business insights, Security scale and innovative technologies such as AIOps and automation. Our AIOps solution now cover over 200,000 devices are gaining traction with large customers as they look for new ways to leverage the network to drive better business outcomes. Speaker 200:07:33With our digital twin technology, customers can stage and test their network deployment in a digital environment, shaving months Actual physical deployment and troubleshooting time. Our AIOps solutions proactively identify network issues, produce false alarms And allow IT teams to be proactive instead of reactive. Here are a few examples. We helped San Diego Community College connect 80,000 students across multiple campuses with our fabric technology. No other vendor in our industry has the expertise or ability To create a single secure hyper segmented campus network that enables 0 touch provisioning of new locations Where moves, adds and changes to network elements within a matter of minutes, with one network running on one cloud, they decreased OpEx by 50%. Speaker 200:08:24Again, none of our competitors can do this. The Dubai World Trade Center recently hosted GITEX, the world's largest technology trade show, which was powered by xtream's wireless, fabric and cloud solutions. The venue supported more than 180,000 attendees and 6,000 exhibitors at this massive event. They used Extreme Fabric to quickly, simply and securely segment 3,300 individual networks in a matter of days with an IT staff of 2 people. Conference attendees thought it was impossible. Speaker 200:09:00To accomplish this with our competitor solution, it would take weeks with a much larger IT team and introduces significant margin of error due to their complexity. A global leading fast food chain has selected Extreme Cloud SD WAN to ensure consistent performance and improved guest experiences at its 1500 locations across the UK. With Extreme, this industry leader has greater visibility across its network and will be able to simplify network management at all locations, These large accounts become important references and brand builders for Extreme. Our increasing pool of large high profile customers And our technology differentiation is why we continue to see the value of deals over $1,000,000 grow each quarter. In Q1, we have more than 30 deals over $1,000,000 We continue to have a healthy customer order backlog with clear visibility to order with specific customer request dates through the balance of our fiscal year. Speaker 200:10:09This quarter, our product lead times normalized allowing us to continue working down backlog from product constraints. We continue to expect our backlog to sell in a range of $75,000,000 to $100,000,000 by the end of Q4 fiscal 'twenty four. Next week at our Investor Day, we'll dive into specifics as to why our technology differentiation brings unmatched simplicity, flexibility The insights that are driving more and more of these high profile customer wins and the wins are elevating our brand and driving share gains both in the channel as well as with our enterprise customers. We'll also share why we're so excited about new commercial opportunities With our recently launched modern managed services platform, our private subscription offer for very large service providers, Our highly targeted certification and security, compliance opportunity and the elevation of our entire portfolio to subscription licensing. All these factors provide accelerants to the share gains we're driving in our core business. Speaker 200:11:15And with that, I'd like to turn the call over to Kevin. Speaker 300:11:19Thanks, Ed. I'm encouraged not only by our performance in the Q1, but also our ability to be decisive and take prudent action as we experienced shifts and market demand. Let me talk about our Q1 results and then I'll move to the outlook. In the Q1, we again demonstrated strong financial and operational performance. We also showed that we remain committed to continuing that level of performance and the future. Speaker 300:11:46Let me get into the numbers. 1st quarter revenue of $353,100,000 grew 19% year over year, exceeding the high end of our expectations entering the quarter. Product revenue of $253,500,000 Grew 23% year over year, reflecting continued improvement in our supply chain environment. We achieved strong double digit year over year growth and campus switching, which grew sequentially as well. SaaS ARR grew 30% year over year to $141,000,000 up from $109,000,000 in the year ago quarter. Speaker 300:12:28Driven by the strength of our renewals, Subscription deferred revenue was up 38% year over year to $236,000,000 Total subscription and support revenue with $99,700,000 up 9% year over year. This growth was largely driven by the strength of cloud subscription revenue, Up 32% year over year. Recurring revenue continues to be a positive story at Extreme. Total recurring revenue of $95,000,000 Grew 11% year over year, accounting for 27% of overall revenue. Additionally, as we ship products from backlog, It will be a tailwind for our SaaS growth. Speaker 300:13:10Based on our current outlook, we expect recurring revenue to be approximately 30% of our revenue for fiscal 2024. The growth of cloud subscriptions and support drove the total deferred revenue to $525,000,000 up 24% year over year. Our gross margin increased once again, achieving 61.1% as compared to 60.2% in the 4th quarter and 57.6% in the year ago quarter. That's up 90 basis points sequentially and up 3 50 basis points year over year. We attribute our gross margin improvements to the excellent work by our Our first quarter operating expenses were $153,000,000 up from $135,000,000 in the year ago quarter and down from $156,000,000 in the 4th quarter. Speaker 300:14:11The year over year increase reflects increased R and D investment and sales and marketing expenses to support our higher revenue growth plans. Our strong revenue growth, gross margin expansion and operating expense management contribute to another increase in our operating margin, now at 17.7%, up from 12.1% in the year ago quarter and up from 17.4% in the prior quarter. To that end, 1st quarter earnings per share was $0.35 above the high end of our guidance range entering the quarter. We finished the Q1 with cash and cash equivalents of $224,000,000 and net cash of $27,000,000 after repurchasing another $25,000,000 worth of shares. We've repurchased $125,000,000 of our shares over the last four quarters and are executing on our commitment to offset dilution from stock awards. Speaker 300:15:11We expect our share count to remain relatively flat for the rest of this year. The $71,000,000 that we generated in free cash flow represents a 20% free cash flow margin above the high end of our long term model. And we also generated $68,000,000 of adjusted EBITDA. Now turning to guidance. We remain optimistic about the enterprise networking spending environment and our ability to take share. Speaker 300:15:41However, looking ahead At the balance of fiscal 2024, we are taking a more cautious tone in light of the current spending environment. Based on changing customer buying patterns and macroeconomic conditions, we are tempering our revenue outlook for this quarter and the balance of the year. We do believe that this is an air pocket as opposed to a more systemic issue within our target markets. For the Q2, we expect Revenue to be in a range of $312,000,000 to $327,000,000 gross margin to be in a range of 60.2% to 62.2 percent. Operating margin to be in a range of 15.4% to 17.3% and earnings to be in a range of $0.26 to $0.31 per diluted share on a share count of $134,000,000 134,000,000 shares. Speaker 300:16:37Despite expected near term market conditions and lower revenue expectations, for the full year fiscal 2024, We expect mid to high single digits of revenue growth, which we believe is above industry growth estimates and implies our share gains will continue. We've also taken recent actions to ensure we align our cost structure with the current level of revenue growth that we expect to achieve. As a result, we believe we are well positioned to deliver strong profitability and improved operating margins during the year, and we expect to generate EPS growth of approximately 25% in fiscal 2024. As Ed noted, we remain committed to long term double digit growth and I see tremendous opportunity for Extreme to grow our business, accelerate our recurring revenue contribution from subscription and support and improve our margins and cash flow. I look forward to laying out some of our long term plans, our new long term plans at our Investor Day next week. Speaker 300:17:42And with that, I'll now turn the call back to the operator to begin the Q and A session. Operator00:17:47Thank you. At this time, we'll conduct the question and answer session. We ask that you limit yourself to one question and one follow-up and return to the queue for additional questions. One moment for our first question. Our first question comes from David Vogt with UBS. Operator00:18:17Your line is open. Speaker 200:18:21Hey, thank you. This is actually Andrew on for David. I wanted to ask you, one of the big So issues looking at this industry for some time now has been the elevated backlog. Certainly, you've had it as well. So what I'm wondering is maybe you can help us understand a little bit better, how much of the sort of mixed signals that the backlogs And so the entire industry is driving your slower outlook versus entirely macro. Speaker 200:18:48Can you sort of pull that apart for us and help us understand it? Yes. Andrew, I'll jump in and then and Kevin, You can follow-up. Andrew, I think when we think about the backlog and you think about what's happened over the course of Yes, the last several quarters, there's and it's not just Extreme, it's the whole industry. There's been a very high level of backlog release Into the channel. Speaker 200:19:18And so in terms of how it's affecting current demand, you might say digestion, But effectively, we put a lot of product into the channel. And so our channel partners are receiving a lot of product and they're moving forward deploying And they're very busy deploying networks. And with that focus on receiving an unusual an unusually high amount of product And networking gear, they're really active in deployment mode right now. And I would say there's And with some of this, they paused some of their purchasing and some of the drawdown from the channel. So I think that's how that's affecting That's how you should think about this affecting the demand, the current demand equation. Speaker 200:20:06As we said, we're calling it an air pocket. This will pass As they deploy the networks, they're going to get back to kind of normal course ordering that will be consistent with kind of normal course demand for networking in the industry. Kevin, do you want to add anything to that? Speaker 300:20:23I think you hit it, Ed. I think you hit all the points. Speaker 200:20:26Okay. And then just my follow-up on that is just obviously you've got backlog working down, you expect it now to normalize in Q4. You've got some very difficult comps in the back half. What is it that gives you the confidence that you're going to see revenue reacceleration in the back half To hit your fiscal 'twenty four revenue targets? Thanks. Speaker 200:20:47Well, Andrew, it's really about what we see in our funnel. We have a very clear picture of opportunities and all those opportunities have kind of a timeline next to them. And it's the quality and the quantity and volume of our funnel that gives us the confidence to make the call. As we turned into Q2, Kevin mentioned that our teams became more cautious with their call. Some of the bookings that we would normally see at the end of the quarter didn't happen. Speaker 200:21:23And with the slowdown of sales cycle, people became a lot more cautious about the call here. A lot of those opportunities landed in the second half of the year. These are high quality opportunities. And so I would say That's what's driving the confidence interval. Kevin, I'll give you a shot to jump in as well. Speaker 300:21:45Yes. I mean, as we think about the quarterly revenue throughout the rest of the year in our guidance for the full year, I mean, obviously, Q4 is the Toughest comp that we have with the $365,000,000 last year, but we're not calling for accelerating growth over top of that. We think that we're going to hit about mid teens for the full year compared to the full year 2023. Speaker 200:22:10Thanks. Operator00:22:12One moment for our next question. Our next question comes from Alex Henderson with Needham. Your line is open. Speaker 400:22:27Great. Just a quick clarification on the guide. So if I were to look at the guide for the upcoming quarter. I assume that the vast majority of the swing is in product sales and The strength of software growth plus the normal services Growth off of lagging product sales would suggest that overall services quarter to quarter and for the year We continue to gradually increase over the course of the next 3, 4 quarters. Is that a fair assessment That's right. Speaker 300:23:07That's right. Is that all in product sales? For the most part, I mean, that's the I mean, obviously, the attach Right, with subscription and support is associated with products. So you'll see a little bit of moderation And the revenue there for subscription and support as it relates to product being lower. But the majority of the Reduction in anticipation of revenue for the full year would be on the product side. Speaker 300:23:36And that's just literally the digestion issue, The macroeconomic people are just taking longer to make decisions and decision cycles are lengthening and we feel like we're in this air pocket where we think we will come out of it. The question is the absorption period, if you will, within the market and when some macro market come back. I think we're seeing this with many companies across the sector. Speaker 400:23:59So just to be clear, the growth in services is generally driven off the last 2 years' worth of product sales. Therefore, It should continue to increase quarter to quarter over the course of the 2024 period, Even if it's at a very flattish kind of trajectory. So it's almost all in product sales? Speaker 300:24:21That would be our expectation. Speaker 400:24:23Okay. So if that's the case, in order to hit your guidance as given, it sounds like your product sales Literally have to be down in the December quarter and essentially flat for the full year, Excluding the just printed quarter, is that also an accurate read? And if that's the case, What is the mechanics underneath the surface between the inventory drawdown At your channel versus the sell through, so what does the rate of sell through look like If you were to look at it from the customer perspective as opposed to the 2 tier channel distribution perspective? Speaker 300:25:16I mean, 1st of all, 4th quarter is a long way away right now. We look at just the pipeline and the pipe we've got a combination of backlog that will It is expected for customer request dates in the Q4, so we have that information. We've got the overall pipeline and we know some of that pipeline relates to existing customers, some of it's New logos, we assess that pipeline. Naturally between Q2 and Q3, we'll build more pipeline for Q4. And so I would say we throw that all through the machine and we look at what we think we're going to achieve for the year and it's up, but it's up on a full year basis That mid to high single digits for the full year as it relates to Q4, yes, we've got a tough comp As I mentioned, that could be flattish in the Q4, but for the full year still up. Speaker 400:26:08Yes. The question really was what's the difference between sell through to customers and I. E. What is the underlying customer growth rate In terms of buying product from your channel as opposed to the work down of inventory In your 2 tier distribution channel, so if you were to look underneath the surface here, yes, there's flat product sales, but That is reflective of underlying sell through of what Percentage of your revenues coming out of the 2 tier distribution. So how much of this is the channel distribution Inventory destocking and how much of this is a weakness in underlying demand? Speaker 300:27:01I mean, it's hard to tease that and pull that apart naturally, Alex. We don't have perfect visibility into all of that. I would say That our 2 tier reseller and distribution program, like it's relatively healthy is what I would say. Like they've got healthy now fully normalized inventory levels that they have. We don't have too much Necessarily in the distribution level and we've got our own healthy amount that we have on our own in warehouse. Speaker 300:27:36We're looking at as more end customer demand challenges right now. This AirPOC it is more of a And customer demand, we got 2 wars going on right now, etcetera, etcetera. So we're just seeing Europe being this more sluggish, I would say, Area of any we commented particularly in Germany that that's the area that's really I'll call it Causing the slowdown is mostly in the European area. We're doing well in APAC and the U. S. Speaker 300:28:05Still continues to be strong, but if there's any area, it's that. Thanks. Operator00:28:12One moment for our next question. Our next question comes from Eric Martinuzzi with Lake Street Capital Markets. Your line is open. Speaker 500:28:27Yes. So just a clarification first on the guide for FY 'twenty four, that mid to high single digits, are we talking 4% to 9%? Speaker 300:28:39I guess you would, yes. Speaker 500:28:41Okay. And then the I guess The change in demand environment, it seems like up until about maybe 6 weeks ago, We were still pretty confidently talking about a mid teens growth rate, not only for FY 'twenty four, but for FY 'twenty five. Was there a particular event or 2 That you guys can point back to as the market shifting kind of all at once? Speaker 300:29:18Yes. Ed, you want to cover that? Speaker 200:29:19Yes. Eric, it really happens if Speaker 600:29:23you look Speaker 200:29:23at The way our business flows from an ordering standpoint, and it's the entire industry, There's a buildup towards the end of the quarter, where most of the orders come in, in the last month of the quarter. And literally, Yes, I would say the last 2 weeks of the quarter, when we have A huge pipeline of deals and committed deals, our sellers and then the alarm started coming back that, hey, this is going to push. They decided the decision by and it's really across geographies, Across industries, across verticals where there was this wave of messaging coming from our field that Deals were going to slip and push at an unusually high level. And that it caught us off guard because we No one really saw that coming. We've heard about it, but that happened. Speaker 200:30:29And so there was a There was it started slipping at the end of the quarter and then as we look forward, our teams just got a lot more cautious with their call given the environment. And what we're hearing is that there's more scrutiny over budgets, More people are getting involved in the purchasing process. The projects are still good. The projects are still going to happen. Maybe there's a prioritization Issue that takes place, but you're seeing more purchasing, more financial types, a lot of different Players come into the decision making process, they just slow things down. Speaker 200:31:10And we are not we weren't in a situation where we lost business. We were in a situation where our opportunities just moved out to the right. And that happened literally the last 2 weeks of the quarter. A lot of those orders don't really affect the quarter because Now we're getting close to a point where what we book in a quarter is what we ship. And at the end of the quarter when orders come You don't turn around, that would be kind of more normal backlog with what happens at the end of the quarter, the orders come in and they turn into Your revenue and your shipments for the next quarter. Speaker 200:31:49And so it was that softness at the very end of the quarter that caused us To look at Q2 to be more cautious and conservative and our field teams on the heels of what happened at the end of the quarter Felt they should be more cautious with their calls. So that's really it's kind of the combination of those two things that happen. Speaker 300:32:11And Ed, I would even comment that beyond September 30th, like even to October, we were still seeing some of the same buying pattern issues in the last 30 days that caused us to also assess You know what our Q2 revenue would look like leading up to today. Speaker 500:32:31Yes. Thanks for taking my question. Speaker 200:32:34Thanks, Eric. Operator00:32:43Question comes from Timothy Horan with Oppenheimer. Your line is open. Speaker 700:32:48Thanks guys. Ed, when you study past periods of slowdown, maybe talking to the channel, I mean, can this last 6 months, 18 months, can these networks just run hotter for a little bit longer? And I know you've been asked a few times, but can you just maybe give us a rough guesstimate of what What percentage of the lower guide comes from just working on inventory at the channel versus end user demand? Just kind of hearing mixed signals. Yes, I know it's very hard to quantify, but just a little bit more color. Speaker 700:33:19Thanks. Speaker 200:33:22Yes, it is hard to quantify, Tim, And thanks for the question. Yes, and I'll give an example with some of our largest partners And I'll use I'll pick on EMEA and I'll pick on Germany specifically. They're having a fantastic year. They've gotten all of this product that's been released from backlog and they are solely they're focused and Super active in deploying networks for their customers on our behalf. They are fully consumed And you see their business is way off year over year with us. Speaker 200:34:03These are an example of strategic partner With really healthy business and amazing customers, however, their focus right now is on deploying all that equipment. And so their business is off. They fully expect business to return. And so that's why as we look at Yes, with our outlook, we know it's coming back. It's just there's a near term and we're calling it air pocket For the channel to deploy, if I had to put it if I did just make up a number and place a guess Anya, how much I would allocate to the slowdown of decision making, more people coming into decision making process, Your budgetary constraints pushing versus channel digestion, Kevin, you can jump in, but if I had to give it a finger lick, I'd probably say half, half and half. Speaker 300:35:05Yes, I was thinking 60 macro, 40 digestion, but somewhere in that. Okay. Speaker 200:35:09Yes. And Tim, the other piece is There historically has been a run rate business, and that run rate business It's not insignificant. And we knew that run rate is starting to come back, which is encouraging to us. Our anticipation is that there would be a step function and run rate throughout the course of this fiscal year. And I think That run rate is happening more slowly. Speaker 200:35:41We think that's also a byproduct of what's going on in the channel. Speaker 700:35:46Yes, that's great color. So I mean basically your distribution is full out at this point. They can't handle any more capacity. Speaker 200:35:55It's maybe half a slowdown, but There's the distribution side, okay, distribution has inventory. And then there are channel partners themselves and they're busy and they're saying, okay, distributors don't ship me that product yet because I need to finish this project and then I'll take I'll take delivery for the next project. So that and that slows down distributor buying as well because they're waiting for What we call POS, but they're waiting for our channel partners to draw down on their inventory. So It's kind of it's just gotten backed up a little bit, which is why we're calling it digestion, but it will pass. It will pass. Speaker 700:36:39Very helpful. Thank you. Speaker 200:36:40And I would say, yes, we've been here before. We've seen this happen before. It's a quarter Quarter 2, few quarter phenomenon, but it will pass. We factored all this into our revised outlook for the year And for the quarter. Thank you. Operator00:37:02One moment for our next question. Our next question comes from Dave Kang with B. Riley. Your line is open. Speaker 800:37:15Thank you. Good morning. I may have missed it, but were product orders up or down or any color on that? Speaker 300:37:28So Dave, we haven't really Quoted any dollar amount for orders from 1 quarter to another. We have tended to say that orders Have been up sequentially or down sequentially, etcetera. In our Q2, we had a softer quarter because of what we just discussed around The pushing out of some of those orders and as you think about it, a Q1 order that pushes out, you're obviously not shipping it And it may get done in Q2. So I would say, yes, we had a softer orders quarter in Q1 than we expected. And Speaker 800:38:09And do you expect similar trends in fiscal Q2 or you think they're going to rebound? Speaker 300:38:20We right now, I would say our visibility into the 2nd quarter It's stronger than it was in the Q1 from an orders perspective, but we're not done with the quarter yet. And so I don't know whether At the end of the year, we'll have the same phenomenon that we had in September with orders pushing again. So that's the challenge, if you will, That we have right now from a visibility perspective of the macroeconomic is, are these sales cycles going to continue to elongate? Are things going to continue to push where you can ship it in the quarter? That's the phenomenon. Speaker 200:38:57Yes. Kevin, I'll jump in and say that From a revenue perspective, the impact on revenue, we feel like we hit bottom in the December quarter With product orders being up slightly, but Again, a lot of those orders now in our environment will spill into the March quarter. Orders that come in at the end of the quarter usually Don't get shipped and wind up shipping in the following quarter. So Does that answer your question, Dave? Speaker 800:39:37Yes, yes. And my follow-up is Regarding your competitors, previously you said you don't typically run into Juniper and Arista. Kinderpare and the Risk, it seems like their enterprise business has been growing nicely in recent quarters. Are you seeing And then more in your end markets? Speaker 200:40:06We never see Arista. Their enterprise market is very different than our enterprise market. I think that's An extension of maybe the large financials and some of the other larger an extension of their cloud Data center business with larger customers, but in our market, it would be very unusual for us to see Arista. As it relates to Juniper, we see them more frequently and Juniper is investing in the enterprise market, I think more heavily In the verticals where we play, I think if you read the two leaves on what Juniper said, I think they're calling the same High single digit growth from a demand perspective that we are in the near term. From a revenue perspective, they're still unloading a lot of backlog. Speaker 200:41:04Got it. Thank you. Operator00:41:07One moment for our next question. Our next question comes from Christian Schwab with Craig Hallum. Your line is open. Speaker 900:41:20Hey, great. Thanks for taking my question. So is it safe to assume that backlog is probably almost back to Somewhat normalized level since the conversation is returning to kind of pre COVID conversation, talking about A funnel and a pipeline versus previous conversations of the backlog driving material growth for a material period Time, is that fair? Speaker 200:41:49Christian, I think it's fair to say that our backlog as it relates to distribution It has normalized, but we still have a fair amount of customer backlog that's out there. And yes, I can give an example of like Kroger. We had a very large win with Kroger. They're deploying to all their stores. They don't necessarily want all of the equipment upfront at once. Speaker 200:42:13They want to time that with their deployment. So We have customer request dates, very specific customer request dates. That is one example of many. And what we've said and what continues to be the case is that we see the normalization of our backlog At the end of fiscal Q4 of this fiscal year. Speaker 300:42:38That's right. That's right. And just Speaker 900:42:40to follow-up on that, the push outs that you were talking about at quarter end, is that Direct customer push outs or is that was that unanticipated distribution channel push outs? Speaker 300:42:57Those are customer. Speaker 200:42:59Those are customer, yes. Speaker 900:43:01That's right. Okay, great. And then my last question, A return to 15% top line growth in 'twenty five With 30% of your revenue recurring, it seems like a really strong growth rate for products. So I'm trying to figure out or back into what you guys' growth assumptions For industry growth is, versus market share gains to attain that growth objective? Speaker 300:43:40Well, a couple of things. I mean, one, we'll go through the long range model next Tuesday, right, at our investor conference. So we can talk a little bit more about 25 then. Right now, we're not guiding for 25. I think the biggest point is that recurring revenue will continue to grow. Speaker 300:43:56You're seeing subscriptions grow 30% right now. And so we have to that's the gift that keeps on giving over the next several years. We think this is an air pocket as we mentioned earlier. And so we think that there will be demand coming back towards the end of this year into 2025. So that should normalize and we still have a good like we talked about pipeline And we have a building pipeline. Speaker 300:44:20And so that gives us confidence as well that this is a macroeconomic issue for a period of time and hopefully will abate Here within this year and then 2025 should be a normal more spending normalized spending year. At least that's the visibility we have right now into 2025. Speaker 200:44:41And Christian, I would point out we a lot of our confidence comes from funnel. And we mentioned that we have double digit funnel growth in terms of the year over year opportunities. And so Yes. A lot of the opportunities that are getting pushed out will come to fruition in addition to new demand. So There's a combination of our core business where we're taking share. Speaker 200:45:06If Cisco is a market proxy in terms of what they're calling, it's Low single digit. When we take share, the function is how much share. A point of market share is over 20% growth for Extreme because of our relative size. And that's in the core business. And I also mentioned, we have invested and we've just rolled out and we're in the early stage of ramping A managed services platform, there's a lot of interest in MSP. Speaker 200:45:35We're seeing a lot more people turn to MSP. We've talked about some of our other strategic investments in terms of global security compliance certifications that apply in the U. S. Market as well as targeted opportunities abroad. And we have some other interesting opportunities that are really white spaces for us where we haven't played. Speaker 200:46:00So, As we look at the components of core market taking share and then we look at New white space investments where we haven't played before and they're more commercial models. They don't require heavy investment, But it's more about relationship and go to market and these are new for us and they're just at the early stages of ramp. So those growth rates will And to Kevin's point, I would encourage And And the last point I would make is that, that subscription line is growing at 30%. Speaker 900:46:48Right. I understood that math. I Just wanted the market share gain math, which I think you, I directly understand what you're saying. Great. Thank you. Speaker 200:47:02Thanks, Christian. Speaker 500:47:04Thanks, Christian. Operator00:47:05One moment for our next question. Our next question comes from Greg Mezhninoff with Westpark Capital. Your line is open. Speaker 600:47:19Yes. Thank you. Looking at your geographic distribution, Can Speaker 300:47:25you hear me? Speaker 100:47:26Yes, we can. Yes, we got you. Speaker 600:47:27Oh, good. Okay. Got you. Okay. Looking at your Global Geographic Distribution, I think EMEA was about 40% last quarter. Speaker 600:47:37I didn't see what it was this slide. I haven't had a chance to see it yet. But Going forward, given that EMEA has been a soft area for you for understandable reasons, Market and maybe the Asia Pac markets to kind of offset To kind of channel your resources where the opportunities are still strong from a macro standpoint? Speaker 200:48:13Yes. Greg, EMEA is still hovering around 40%. I think it was 41% -ish. We talked about realigning resources and the answer is yes. We're actively managing, fortunately because of our size and because of the way we manage the business, we move very quickly. Speaker 200:48:33And Yes. We're realigning resources to drive our investment behind success, where we see the growth markets. Within a very short time when we realized what was going on here with near term demand, we made some quick decisions As we pointed out, and a lot of those decisions were around go to market. And we commented on investment in Asia Pacific. There's a lot of year over year growth in Asia Pacific for us will be higher, up over the mean overall. Speaker 200:49:08And We're looking at target investments, for example, in federal where we have significant opportunities and in other pockets. But your point is spot Yes, we're looking at realigning resources where we can drive growth in the business. And we also look at the productivity of our resources that are in the field. And if sales are off, then we have to realign those resources to make sure we're driving productivity. Speaker 600:49:36Got you. And my follow on is, Ed, you very briefly mentioned what I thought was a very interesting opportunity That you are currently in, I guess, discussions with some carriers about offering a enterprise Solution through wireless carriers. Can you give a little more color on that? Speaker 200:49:59Yes, I think we'll talk more in detail next week at our investor conference. But the bottom line is that We have some strong relationships with some very large service providers, who are dissatisfied with current networking relationships. And there's been a kind of, I'd say, mutual outreach. We see some creative ways to work with them to help them drive the profitability of their business. There's a lot of interest in this. Speaker 200:50:29It's still early innings, But the volumes and potential size of the opportunities are quite large. And So yes, there's an opportunity for us to work with them in a way where they can enhance and drive profitability and kind of reinvigorate some of their enterprise sales by replacing, I'd say, some of maybe the older, larger Networking Vendors with Extreme. And we've got a customized solution that we're working on and we'll share more details at Investor Day. Thank you. Thanks, Greg. Operator00:51:09One moment for our next question. Our next question comes from Mike Genovese with Rosenblatt Securities. Your line is open. Speaker 1000:51:26Great, thanks. A lot of my questions have been asked already, questions about your sort of new go to market initiatives and confidence that orders We'll come back. So I'll just ask, I want to kind of summarize those comments for us again. And then my second question, which I'll ask now, is If you could talk about margins, despite the revenue cut, you're still looking for Pretty good EPS growth. So just sort of go through those dynamics of what we should expect for margins a little bit more please. Speaker 1000:52:00Thanks. Speaker 200:52:03Sure. So there's what we're doing Mike, there's what we're doing in the core business to take share. My comments, I made a point of commenting on what matters the most in the market overall right now and Networks are inherently complex and in the enterprise space, people are trying to Come to grips with how do we simplify the environment and how do we make sure that we have flexibility going forward And we don't have a vendor lock situation where we get kind of stuck in a certain technology. And do we have modern networking tools? And today Extreme is by far the simplest in terms of our solutions. Speaker 200:52:53We offer the most flexibility And we have the most modern tools in terms of modern networking tools. So we become A very attractive alternative. So our share gain profile and when we're winning the kind of accounts that we're winning with the kind of names that we're winning for references, That bodes very well for us. And our customer names support our brand and support us in building our brand in the marketplace. So that's just core market share gains. Speaker 200:53:28You'll hear more about that, but we have a ton of these Larger opportunities behind this and it's kind of success begins success. In terms of the new market opportunities, Yes. A lot of enterprise customers don't want to be in the networking business, and so they want service provider or managed service providers, which are a lot of people in our channel To provide a managed service, the problem with managed services is that the platforms are really complicated and difficult to manage. And a managed service provider has to have so many interfaces into so many different clouds and into so many different portals and the billing is complicated, So we set out, over a year ago to build a managed service platform, a modern managed service platform Based on simplicity and we are we've come up with what is a very exciting platform that greatly simplifies The ability to provide a managed service from a networking perspective and all the elements that we're providing. And so there's been a huge amount of excitement around it. Speaker 200:54:31It does take a while to stand up. We started off with a goal of 5 service providers. We mentioned now we're at 7. We think that's going to scale up quite a bit and we're going to make it much easier for a managed service provider to deliver a networking experience Far easier and then with the simplicity of licensing, etcetera, the whole package will make it easier. So we're optimistic There it doesn't really affect fiscal 2024 much, but it will start to play a role in fiscal 2025. Speaker 200:55:04We talked about A private subscription offer to some very large service providers to support them in their enterprise business. Very early innings here. We have a couple of large players we're talking to. 1 specifically, it has a massive Backlog and pipeline of opportunities. So we're excited about that. Speaker 200:55:27We are investing in Fed certs. It's an area that we had underinvested in previously. We have new resources that we've hired that have uncovered some very targeted specific opportunities that we're pursuing that open up much higher than normal industry growth opportunities there. We also mentioned Asia Pacific, where we have been rebuilding that team. We have very strong leadership there and we see big opportunities And verticals like hospitality. Speaker 200:56:00And we've had a massive Yes. The largest deal ever that we've won in Asia Pacific, A $10,000,000 deal in Indonesia, we can build on that success. We're having a lot of success right now in Japan. In Korea, where we've been historically strong, we have some really large opportunities with some of the large players there. So those are the areas in terms of managed service, This global security and certification, the private offer as well as Asia Pacific Investments, The last thing that we're doing is we're about 66% of our networking gear Is licensed and runs in cloud, and we have a plan to make that 100%. Speaker 200:56:49So we see accelerated growth in subscription As we build out our Extreme Cloud, not just a cloud management platform or a management tool, but an Extreme Cloud Platform as a Service Orchestrator and we'll talk about that at Investor Day as well. Speaker 500:57:11Great. That was a lot of color. Speaker 1000:57:13Thanks for that. And then just on the margins, talk more about how the bottom line here grows Speaker 300:57:21You want me to cover that one? Speaker 200:57:22Go for it. Speaker 300:57:24Yes, I think Mike, so it's kind of rooted in our planning That's right. When we develop our annual planning process, we look at discretionary spend and what that is and our fixed spend and we understand The levers we need to pull, if we need to pull back, we can pull back on hiring, we can pull back on discretionary spend and the like, If we see the business environment changing, we were able to act quickly, which was great for us in the quarter to this kind of evolving market environment. So that's still enabling us to have a good second quarter from an EPS perspective And obviously helps us for the rest of the year as well. So I would say we feel confident in our ability to achieve that 25 Growth in EPS this year. There's not many companies out there where you can say, hey, even if your top line It's single to high teens revenue growth. Speaker 300:58:25You're still delivering 25% profitability and we've been delivering High levels of growth and profitability for quite some time for several years. And so we think that that is an important element for Shareholders to look at and realize that this company is going to get through this air pocket, still deliver good strong profitable growth this year. And then next year, we'll turn back into a more mid teens growth company and deliver that margin as well. So that's the goal. Speaker 1000:58:58Greg, can I just one quick follow-up there? Could you just talk a little bit of sort of gross margin versus Operating margin, the comments seemed to me focused more on the operating expenses, but I think that is the gross margin Speaker 300:59:15Yes, I mean, we're going to continue to look at ways of how we can continue to expand our gross margin for sure, Mike. I think we originally said that we're expecting it to be somewhere in the 62% range for the full year. We're not backing off that. We think that we will continue to see Improvement throughout the year, I don't know if it's going to be 90 basis points sequentially every single quarter, but we Are expecting that we continue to improve our gross margins throughout the year. That's going to help Yes. Speaker 200:59:47And Mike, What's implied in a 62% gross margin is obviously we end the year over that and more of a 63% range. So As it relates to gross margins, we continue to see gross margin stepping here as we come out of supply chain And as we see some of the mix dynamics as it relates to subscription, etcetera. Speaker 301:00:11Good point, Ed. Yes. Speaker 1001:00:13All right. Well, thanks for the answers. Thank Operator01:00:17you. That concludes the question and answer session. At this time, I would like to turn it back to Ed Meyercord for closing remarks. Speaker 201:00:24Okay. Well, first of all, thanks everybody for participating in the call. We appreciate your interest in Extreme. I want to shout out, we get a lot of employees and customers and partners that join as well. So I want to thank Our employees for all the hard work and customers and partners for the business relationship and the commitment to Extreme. Speaker 201:00:50As far as everyone is concerned here, we invite everyone to tune into Investor Day. We have a lot of opportunities. We're going to go into a lot of detail around the core market, the growth opportunities as well as kind of help what this looks like from a financial perspective. So we invite everyone to participate And we hope to see you there. I'll reiterate, we see this as aRead morePowered by Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Extreme Networks Earnings HeadlinesQuantum Networks Could Help Reveal the Nature of Quantum GravityJuly 18, 2025 | msn.comExtreme Delivers Industry's First Integrated AI Networking Platform: Extreme Platform ONE Dramatically Accelerates Team Productivity and PerformanceJuly 15, 2025 | tmcnet.comGenesis 14:13-17 [HIDDEN MEANING?]A mysterious Bible verse from Genesis may hold the key to unlocking what one expert calls an “American birthright” — a $150 trillion wealth vault that’s remained untouched for over a century. Jim Rickards believes President Trump is about to unleash it — and investors who move first could come out on top. The full story is now available.July 26 at 2:00 AM | Paradigm Press (Ad)Extreme Networks Schedules Fourth Quarter and Fiscal Year 2025 ...July 12, 2025 | seekingalpha.comExtreme Networks Schedules Fourth Quarter and Fiscal Year 2025 Financial Results Conference CallJuly 10, 2025 | businesswire.comExtreme Networks, Inc. (EXTR) Income Statement - Yahoo FinanceJuly 3, 2025 | finance.yahoo.comSee More Extreme Networks Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Extreme Networks? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Extreme Networks and other key companies, straight to your email. Email Address About Extreme NetworksExtreme Networks (NASDAQ:EXTR) delivers cloud-driven networking solutions that leverage the powers of machine learning, artificial intelligence, analytics, and automation. 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There are 11 speakers on the call. Operator00:00:00Good day and thank you for standing by. Welcome to the Extreme Networks First Quarter Fiscal Year 20 24 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stan Koeffler, Vice President of Corporate Strategy and Investor Relations. Operator00:00:40Please go ahead. Speaker 100:00:42Thank you, Abigail. Good morning, everyone, and welcome to Extreme Networks' Q1 2024 earnings conference call. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations. With me today are Extreme's President and CEO, Ed Meyercord and CFO, Kevin Rhodes. We just distributed a press release and filed an 8 ks detailing Extreme Networks' financial results for the quarter. Speaker 100:01:05For your convenience, a copy of the press release, which includes GAAP to non GAAP reconciliations is available in the Investor Relations section of our website at extremenetworth.com along with our earnings presentation. Today's call and our discussion may include forward looking statements based on our current expectations about Extreme's future business, financial and operational results, Growth expectations and strategies, all financial disclosures on this call will be made on a non GAAP basis unless stated otherwise. We caution you not to put undue reliance on these forward looking statements as they involve risks and uncertainties that can cause actual results to differ materially from those anticipated by these statements. These risks are described in our Risk Factors in the 10 ks report for the period ending June 30, 2023 filed with the SEC, And any forward looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them except as required by law. Following our prepared remarks, we will take questions. Speaker 100:02:03And now, I will turn the call over to Extreme's President and CEO, Ed Meyercord. Speaker 200:02:10Thanks, DeAnne, and thank you all for joining us this morning. Extreme delivered another strong quarter with revenue growth of 19% and EPS growth 75%. We continue to move up market and the dollar value of deals over $1,000,000 continue to grow quarter over quarter. Cloud adoption remains strong on 30% year over year ARR growth to $141,000,000 and SaaS deferred revenue 38% year over year. Customer retention metrics remain high, a testament to our customers' loyalty and preference for our industry leading solutions. Speaker 200:02:46We outpaced overall market growth in the quarter and expect continued share gains in fiscal 2024 in our core business. Our new go to market initiatives outperformed in the quarter as well. This includes expansion across APAC, certifications in regulated industries like to sell the enterprise to large service providers with a private subscription offer. In addition, we have a plan to license All network devices connected to our evolving Extreme Cloud platform, this will deliver even greater simplicity, value and flexibility Beyond the cloud management capabilities we offer today and create more stickiness for our SaaS business. Our strategic initiatives around differentiated 0 Trust posture, expanded machine learning and AI capabilities are expected to drive expansion, ARR growth and average revenue per user. Speaker 200:03:48At the end of fiscal Q1, we felt the impact of the macro environment trends in our industry and lowered our outlook for near term top line growth. The higher interest rate environment and economic challenges in some of our larger markets like Germany, lengthened sales cycles and pushed out a larger amount of end of quarter orders in Q1 than we would normally expect. Our channel partners are digesting a large volume of backlog release And focusing on network deployment slowing down their current ordering. And as a result, we don't expect run rate business to ramp as quickly as anticipated. In light of what we would call an air pocket of demand and decision making, leading to our revised growth outlook for the year, We took immediate action to realign resources to drive higher productivity and profitability. Speaker 200:04:40As a result, we continue to expect high teens operating margin in fiscal 2024 that will allow us to grow our EPS by over 25% during the year. Our funnel of opportunities continues to grow, up double digits on a year over year basis as our underlying business and competitive position remain strong. Over the long term, we expect to return to a mid teens top line growth outlook and a mid-20s operating margin. And here's why. Customers tell us they're tired of complexity, inflexibility and the high costs associated with the old networking models from the larger networking companies. Speaker 200:05:21They choose Extreme because we set the bar for modern networking With a combination of innovative and flexible technology, licensing and deployment simplicity and a focus on driving impactful business outcomes, Customers view their network as a strategic asset to enhance operations, power and scale new services and reduce business risk, especially cybersecurity risk. Our customers choose Extreme for 3 primary reasons. First is operational simplicity, That is driving IT productivity, network availability, ease of use, improving both time to value and total cost of ownership for their networking investment. We're the only networking provider that can deploy campus networking fabrics from our cloud. This makes moves, adds and changes to networks simple and seamless, allows customers to segment networks And provides unmatched security and resiliency. Speaker 200:06:18While fabrics are common in data center environments, we're the only competitor who can bring these services to the dynamic campus environment orchestrated through our cloud. We create 1 network, 1 cloud for customers to remove the complexity of managing their entire network infrastructure. 2nd, we offer unmatched flexibility. We offer cloud choice, Public, private, hybrid and edge cloud deployments that can be managed through a single interface. Our universal switches offer OS choice And deployment options. Speaker 200:06:52We have the industry's simplest licensing. Unlike competitors, we don't require our customers to hire full time employees just to manage licenses. And finally, we're the only networking vendor that can manage a mixed environment without requiring them to rip and replace All their infrastructure at once as they modernize. 3rd, our cloud solutions offer actionable business insights, Security scale and innovative technologies such as AIOps and automation. Our AIOps solution now cover over 200,000 devices are gaining traction with large customers as they look for new ways to leverage the network to drive better business outcomes. Speaker 200:07:33With our digital twin technology, customers can stage and test their network deployment in a digital environment, shaving months Actual physical deployment and troubleshooting time. Our AIOps solutions proactively identify network issues, produce false alarms And allow IT teams to be proactive instead of reactive. Here are a few examples. We helped San Diego Community College connect 80,000 students across multiple campuses with our fabric technology. No other vendor in our industry has the expertise or ability To create a single secure hyper segmented campus network that enables 0 touch provisioning of new locations Where moves, adds and changes to network elements within a matter of minutes, with one network running on one cloud, they decreased OpEx by 50%. Speaker 200:08:24Again, none of our competitors can do this. The Dubai World Trade Center recently hosted GITEX, the world's largest technology trade show, which was powered by xtream's wireless, fabric and cloud solutions. The venue supported more than 180,000 attendees and 6,000 exhibitors at this massive event. They used Extreme Fabric to quickly, simply and securely segment 3,300 individual networks in a matter of days with an IT staff of 2 people. Conference attendees thought it was impossible. Speaker 200:09:00To accomplish this with our competitor solution, it would take weeks with a much larger IT team and introduces significant margin of error due to their complexity. A global leading fast food chain has selected Extreme Cloud SD WAN to ensure consistent performance and improved guest experiences at its 1500 locations across the UK. With Extreme, this industry leader has greater visibility across its network and will be able to simplify network management at all locations, These large accounts become important references and brand builders for Extreme. Our increasing pool of large high profile customers And our technology differentiation is why we continue to see the value of deals over $1,000,000 grow each quarter. In Q1, we have more than 30 deals over $1,000,000 We continue to have a healthy customer order backlog with clear visibility to order with specific customer request dates through the balance of our fiscal year. Speaker 200:10:09This quarter, our product lead times normalized allowing us to continue working down backlog from product constraints. We continue to expect our backlog to sell in a range of $75,000,000 to $100,000,000 by the end of Q4 fiscal 'twenty four. Next week at our Investor Day, we'll dive into specifics as to why our technology differentiation brings unmatched simplicity, flexibility The insights that are driving more and more of these high profile customer wins and the wins are elevating our brand and driving share gains both in the channel as well as with our enterprise customers. We'll also share why we're so excited about new commercial opportunities With our recently launched modern managed services platform, our private subscription offer for very large service providers, Our highly targeted certification and security, compliance opportunity and the elevation of our entire portfolio to subscription licensing. All these factors provide accelerants to the share gains we're driving in our core business. Speaker 200:11:15And with that, I'd like to turn the call over to Kevin. Speaker 300:11:19Thanks, Ed. I'm encouraged not only by our performance in the Q1, but also our ability to be decisive and take prudent action as we experienced shifts and market demand. Let me talk about our Q1 results and then I'll move to the outlook. In the Q1, we again demonstrated strong financial and operational performance. We also showed that we remain committed to continuing that level of performance and the future. Speaker 300:11:46Let me get into the numbers. 1st quarter revenue of $353,100,000 grew 19% year over year, exceeding the high end of our expectations entering the quarter. Product revenue of $253,500,000 Grew 23% year over year, reflecting continued improvement in our supply chain environment. We achieved strong double digit year over year growth and campus switching, which grew sequentially as well. SaaS ARR grew 30% year over year to $141,000,000 up from $109,000,000 in the year ago quarter. Speaker 300:12:28Driven by the strength of our renewals, Subscription deferred revenue was up 38% year over year to $236,000,000 Total subscription and support revenue with $99,700,000 up 9% year over year. This growth was largely driven by the strength of cloud subscription revenue, Up 32% year over year. Recurring revenue continues to be a positive story at Extreme. Total recurring revenue of $95,000,000 Grew 11% year over year, accounting for 27% of overall revenue. Additionally, as we ship products from backlog, It will be a tailwind for our SaaS growth. Speaker 300:13:10Based on our current outlook, we expect recurring revenue to be approximately 30% of our revenue for fiscal 2024. The growth of cloud subscriptions and support drove the total deferred revenue to $525,000,000 up 24% year over year. Our gross margin increased once again, achieving 61.1% as compared to 60.2% in the 4th quarter and 57.6% in the year ago quarter. That's up 90 basis points sequentially and up 3 50 basis points year over year. We attribute our gross margin improvements to the excellent work by our Our first quarter operating expenses were $153,000,000 up from $135,000,000 in the year ago quarter and down from $156,000,000 in the 4th quarter. Speaker 300:14:11The year over year increase reflects increased R and D investment and sales and marketing expenses to support our higher revenue growth plans. Our strong revenue growth, gross margin expansion and operating expense management contribute to another increase in our operating margin, now at 17.7%, up from 12.1% in the year ago quarter and up from 17.4% in the prior quarter. To that end, 1st quarter earnings per share was $0.35 above the high end of our guidance range entering the quarter. We finished the Q1 with cash and cash equivalents of $224,000,000 and net cash of $27,000,000 after repurchasing another $25,000,000 worth of shares. We've repurchased $125,000,000 of our shares over the last four quarters and are executing on our commitment to offset dilution from stock awards. Speaker 300:15:11We expect our share count to remain relatively flat for the rest of this year. The $71,000,000 that we generated in free cash flow represents a 20% free cash flow margin above the high end of our long term model. And we also generated $68,000,000 of adjusted EBITDA. Now turning to guidance. We remain optimistic about the enterprise networking spending environment and our ability to take share. Speaker 300:15:41However, looking ahead At the balance of fiscal 2024, we are taking a more cautious tone in light of the current spending environment. Based on changing customer buying patterns and macroeconomic conditions, we are tempering our revenue outlook for this quarter and the balance of the year. We do believe that this is an air pocket as opposed to a more systemic issue within our target markets. For the Q2, we expect Revenue to be in a range of $312,000,000 to $327,000,000 gross margin to be in a range of 60.2% to 62.2 percent. Operating margin to be in a range of 15.4% to 17.3% and earnings to be in a range of $0.26 to $0.31 per diluted share on a share count of $134,000,000 134,000,000 shares. Speaker 300:16:37Despite expected near term market conditions and lower revenue expectations, for the full year fiscal 2024, We expect mid to high single digits of revenue growth, which we believe is above industry growth estimates and implies our share gains will continue. We've also taken recent actions to ensure we align our cost structure with the current level of revenue growth that we expect to achieve. As a result, we believe we are well positioned to deliver strong profitability and improved operating margins during the year, and we expect to generate EPS growth of approximately 25% in fiscal 2024. As Ed noted, we remain committed to long term double digit growth and I see tremendous opportunity for Extreme to grow our business, accelerate our recurring revenue contribution from subscription and support and improve our margins and cash flow. I look forward to laying out some of our long term plans, our new long term plans at our Investor Day next week. Speaker 300:17:42And with that, I'll now turn the call back to the operator to begin the Q and A session. Operator00:17:47Thank you. At this time, we'll conduct the question and answer session. We ask that you limit yourself to one question and one follow-up and return to the queue for additional questions. One moment for our first question. Our first question comes from David Vogt with UBS. Operator00:18:17Your line is open. Speaker 200:18:21Hey, thank you. This is actually Andrew on for David. I wanted to ask you, one of the big So issues looking at this industry for some time now has been the elevated backlog. Certainly, you've had it as well. So what I'm wondering is maybe you can help us understand a little bit better, how much of the sort of mixed signals that the backlogs And so the entire industry is driving your slower outlook versus entirely macro. Speaker 200:18:48Can you sort of pull that apart for us and help us understand it? Yes. Andrew, I'll jump in and then and Kevin, You can follow-up. Andrew, I think when we think about the backlog and you think about what's happened over the course of Yes, the last several quarters, there's and it's not just Extreme, it's the whole industry. There's been a very high level of backlog release Into the channel. Speaker 200:19:18And so in terms of how it's affecting current demand, you might say digestion, But effectively, we put a lot of product into the channel. And so our channel partners are receiving a lot of product and they're moving forward deploying And they're very busy deploying networks. And with that focus on receiving an unusual an unusually high amount of product And networking gear, they're really active in deployment mode right now. And I would say there's And with some of this, they paused some of their purchasing and some of the drawdown from the channel. So I think that's how that's affecting That's how you should think about this affecting the demand, the current demand equation. Speaker 200:20:06As we said, we're calling it an air pocket. This will pass As they deploy the networks, they're going to get back to kind of normal course ordering that will be consistent with kind of normal course demand for networking in the industry. Kevin, do you want to add anything to that? Speaker 300:20:23I think you hit it, Ed. I think you hit all the points. Speaker 200:20:26Okay. And then just my follow-up on that is just obviously you've got backlog working down, you expect it now to normalize in Q4. You've got some very difficult comps in the back half. What is it that gives you the confidence that you're going to see revenue reacceleration in the back half To hit your fiscal 'twenty four revenue targets? Thanks. Speaker 200:20:47Well, Andrew, it's really about what we see in our funnel. We have a very clear picture of opportunities and all those opportunities have kind of a timeline next to them. And it's the quality and the quantity and volume of our funnel that gives us the confidence to make the call. As we turned into Q2, Kevin mentioned that our teams became more cautious with their call. Some of the bookings that we would normally see at the end of the quarter didn't happen. Speaker 200:21:23And with the slowdown of sales cycle, people became a lot more cautious about the call here. A lot of those opportunities landed in the second half of the year. These are high quality opportunities. And so I would say That's what's driving the confidence interval. Kevin, I'll give you a shot to jump in as well. Speaker 300:21:45Yes. I mean, as we think about the quarterly revenue throughout the rest of the year in our guidance for the full year, I mean, obviously, Q4 is the Toughest comp that we have with the $365,000,000 last year, but we're not calling for accelerating growth over top of that. We think that we're going to hit about mid teens for the full year compared to the full year 2023. Speaker 200:22:10Thanks. Operator00:22:12One moment for our next question. Our next question comes from Alex Henderson with Needham. Your line is open. Speaker 400:22:27Great. Just a quick clarification on the guide. So if I were to look at the guide for the upcoming quarter. I assume that the vast majority of the swing is in product sales and The strength of software growth plus the normal services Growth off of lagging product sales would suggest that overall services quarter to quarter and for the year We continue to gradually increase over the course of the next 3, 4 quarters. Is that a fair assessment That's right. Speaker 300:23:07That's right. Is that all in product sales? For the most part, I mean, that's the I mean, obviously, the attach Right, with subscription and support is associated with products. So you'll see a little bit of moderation And the revenue there for subscription and support as it relates to product being lower. But the majority of the Reduction in anticipation of revenue for the full year would be on the product side. Speaker 300:23:36And that's just literally the digestion issue, The macroeconomic people are just taking longer to make decisions and decision cycles are lengthening and we feel like we're in this air pocket where we think we will come out of it. The question is the absorption period, if you will, within the market and when some macro market come back. I think we're seeing this with many companies across the sector. Speaker 400:23:59So just to be clear, the growth in services is generally driven off the last 2 years' worth of product sales. Therefore, It should continue to increase quarter to quarter over the course of the 2024 period, Even if it's at a very flattish kind of trajectory. So it's almost all in product sales? Speaker 300:24:21That would be our expectation. Speaker 400:24:23Okay. So if that's the case, in order to hit your guidance as given, it sounds like your product sales Literally have to be down in the December quarter and essentially flat for the full year, Excluding the just printed quarter, is that also an accurate read? And if that's the case, What is the mechanics underneath the surface between the inventory drawdown At your channel versus the sell through, so what does the rate of sell through look like If you were to look at it from the customer perspective as opposed to the 2 tier channel distribution perspective? Speaker 300:25:16I mean, 1st of all, 4th quarter is a long way away right now. We look at just the pipeline and the pipe we've got a combination of backlog that will It is expected for customer request dates in the Q4, so we have that information. We've got the overall pipeline and we know some of that pipeline relates to existing customers, some of it's New logos, we assess that pipeline. Naturally between Q2 and Q3, we'll build more pipeline for Q4. And so I would say we throw that all through the machine and we look at what we think we're going to achieve for the year and it's up, but it's up on a full year basis That mid to high single digits for the full year as it relates to Q4, yes, we've got a tough comp As I mentioned, that could be flattish in the Q4, but for the full year still up. Speaker 400:26:08Yes. The question really was what's the difference between sell through to customers and I. E. What is the underlying customer growth rate In terms of buying product from your channel as opposed to the work down of inventory In your 2 tier distribution channel, so if you were to look underneath the surface here, yes, there's flat product sales, but That is reflective of underlying sell through of what Percentage of your revenues coming out of the 2 tier distribution. So how much of this is the channel distribution Inventory destocking and how much of this is a weakness in underlying demand? Speaker 300:27:01I mean, it's hard to tease that and pull that apart naturally, Alex. We don't have perfect visibility into all of that. I would say That our 2 tier reseller and distribution program, like it's relatively healthy is what I would say. Like they've got healthy now fully normalized inventory levels that they have. We don't have too much Necessarily in the distribution level and we've got our own healthy amount that we have on our own in warehouse. Speaker 300:27:36We're looking at as more end customer demand challenges right now. This AirPOC it is more of a And customer demand, we got 2 wars going on right now, etcetera, etcetera. So we're just seeing Europe being this more sluggish, I would say, Area of any we commented particularly in Germany that that's the area that's really I'll call it Causing the slowdown is mostly in the European area. We're doing well in APAC and the U. S. Speaker 300:28:05Still continues to be strong, but if there's any area, it's that. Thanks. Operator00:28:12One moment for our next question. Our next question comes from Eric Martinuzzi with Lake Street Capital Markets. Your line is open. Speaker 500:28:27Yes. So just a clarification first on the guide for FY 'twenty four, that mid to high single digits, are we talking 4% to 9%? Speaker 300:28:39I guess you would, yes. Speaker 500:28:41Okay. And then the I guess The change in demand environment, it seems like up until about maybe 6 weeks ago, We were still pretty confidently talking about a mid teens growth rate, not only for FY 'twenty four, but for FY 'twenty five. Was there a particular event or 2 That you guys can point back to as the market shifting kind of all at once? Speaker 300:29:18Yes. Ed, you want to cover that? Speaker 200:29:19Yes. Eric, it really happens if Speaker 600:29:23you look Speaker 200:29:23at The way our business flows from an ordering standpoint, and it's the entire industry, There's a buildup towards the end of the quarter, where most of the orders come in, in the last month of the quarter. And literally, Yes, I would say the last 2 weeks of the quarter, when we have A huge pipeline of deals and committed deals, our sellers and then the alarm started coming back that, hey, this is going to push. They decided the decision by and it's really across geographies, Across industries, across verticals where there was this wave of messaging coming from our field that Deals were going to slip and push at an unusually high level. And that it caught us off guard because we No one really saw that coming. We've heard about it, but that happened. Speaker 200:30:29And so there was a There was it started slipping at the end of the quarter and then as we look forward, our teams just got a lot more cautious with their call given the environment. And what we're hearing is that there's more scrutiny over budgets, More people are getting involved in the purchasing process. The projects are still good. The projects are still going to happen. Maybe there's a prioritization Issue that takes place, but you're seeing more purchasing, more financial types, a lot of different Players come into the decision making process, they just slow things down. Speaker 200:31:10And we are not we weren't in a situation where we lost business. We were in a situation where our opportunities just moved out to the right. And that happened literally the last 2 weeks of the quarter. A lot of those orders don't really affect the quarter because Now we're getting close to a point where what we book in a quarter is what we ship. And at the end of the quarter when orders come You don't turn around, that would be kind of more normal backlog with what happens at the end of the quarter, the orders come in and they turn into Your revenue and your shipments for the next quarter. Speaker 200:31:49And so it was that softness at the very end of the quarter that caused us To look at Q2 to be more cautious and conservative and our field teams on the heels of what happened at the end of the quarter Felt they should be more cautious with their calls. So that's really it's kind of the combination of those two things that happen. Speaker 300:32:11And Ed, I would even comment that beyond September 30th, like even to October, we were still seeing some of the same buying pattern issues in the last 30 days that caused us to also assess You know what our Q2 revenue would look like leading up to today. Speaker 500:32:31Yes. Thanks for taking my question. Speaker 200:32:34Thanks, Eric. Operator00:32:43Question comes from Timothy Horan with Oppenheimer. Your line is open. Speaker 700:32:48Thanks guys. Ed, when you study past periods of slowdown, maybe talking to the channel, I mean, can this last 6 months, 18 months, can these networks just run hotter for a little bit longer? And I know you've been asked a few times, but can you just maybe give us a rough guesstimate of what What percentage of the lower guide comes from just working on inventory at the channel versus end user demand? Just kind of hearing mixed signals. Yes, I know it's very hard to quantify, but just a little bit more color. Speaker 700:33:19Thanks. Speaker 200:33:22Yes, it is hard to quantify, Tim, And thanks for the question. Yes, and I'll give an example with some of our largest partners And I'll use I'll pick on EMEA and I'll pick on Germany specifically. They're having a fantastic year. They've gotten all of this product that's been released from backlog and they are solely they're focused and Super active in deploying networks for their customers on our behalf. They are fully consumed And you see their business is way off year over year with us. Speaker 200:34:03These are an example of strategic partner With really healthy business and amazing customers, however, their focus right now is on deploying all that equipment. And so their business is off. They fully expect business to return. And so that's why as we look at Yes, with our outlook, we know it's coming back. It's just there's a near term and we're calling it air pocket For the channel to deploy, if I had to put it if I did just make up a number and place a guess Anya, how much I would allocate to the slowdown of decision making, more people coming into decision making process, Your budgetary constraints pushing versus channel digestion, Kevin, you can jump in, but if I had to give it a finger lick, I'd probably say half, half and half. Speaker 300:35:05Yes, I was thinking 60 macro, 40 digestion, but somewhere in that. Okay. Speaker 200:35:09Yes. And Tim, the other piece is There historically has been a run rate business, and that run rate business It's not insignificant. And we knew that run rate is starting to come back, which is encouraging to us. Our anticipation is that there would be a step function and run rate throughout the course of this fiscal year. And I think That run rate is happening more slowly. Speaker 200:35:41We think that's also a byproduct of what's going on in the channel. Speaker 700:35:46Yes, that's great color. So I mean basically your distribution is full out at this point. They can't handle any more capacity. Speaker 200:35:55It's maybe half a slowdown, but There's the distribution side, okay, distribution has inventory. And then there are channel partners themselves and they're busy and they're saying, okay, distributors don't ship me that product yet because I need to finish this project and then I'll take I'll take delivery for the next project. So that and that slows down distributor buying as well because they're waiting for What we call POS, but they're waiting for our channel partners to draw down on their inventory. So It's kind of it's just gotten backed up a little bit, which is why we're calling it digestion, but it will pass. It will pass. Speaker 700:36:39Very helpful. Thank you. Speaker 200:36:40And I would say, yes, we've been here before. We've seen this happen before. It's a quarter Quarter 2, few quarter phenomenon, but it will pass. We factored all this into our revised outlook for the year And for the quarter. Thank you. Operator00:37:02One moment for our next question. Our next question comes from Dave Kang with B. Riley. Your line is open. Speaker 800:37:15Thank you. Good morning. I may have missed it, but were product orders up or down or any color on that? Speaker 300:37:28So Dave, we haven't really Quoted any dollar amount for orders from 1 quarter to another. We have tended to say that orders Have been up sequentially or down sequentially, etcetera. In our Q2, we had a softer quarter because of what we just discussed around The pushing out of some of those orders and as you think about it, a Q1 order that pushes out, you're obviously not shipping it And it may get done in Q2. So I would say, yes, we had a softer orders quarter in Q1 than we expected. And Speaker 800:38:09And do you expect similar trends in fiscal Q2 or you think they're going to rebound? Speaker 300:38:20We right now, I would say our visibility into the 2nd quarter It's stronger than it was in the Q1 from an orders perspective, but we're not done with the quarter yet. And so I don't know whether At the end of the year, we'll have the same phenomenon that we had in September with orders pushing again. So that's the challenge, if you will, That we have right now from a visibility perspective of the macroeconomic is, are these sales cycles going to continue to elongate? Are things going to continue to push where you can ship it in the quarter? That's the phenomenon. Speaker 200:38:57Yes. Kevin, I'll jump in and say that From a revenue perspective, the impact on revenue, we feel like we hit bottom in the December quarter With product orders being up slightly, but Again, a lot of those orders now in our environment will spill into the March quarter. Orders that come in at the end of the quarter usually Don't get shipped and wind up shipping in the following quarter. So Does that answer your question, Dave? Speaker 800:39:37Yes, yes. And my follow-up is Regarding your competitors, previously you said you don't typically run into Juniper and Arista. Kinderpare and the Risk, it seems like their enterprise business has been growing nicely in recent quarters. Are you seeing And then more in your end markets? Speaker 200:40:06We never see Arista. Their enterprise market is very different than our enterprise market. I think that's An extension of maybe the large financials and some of the other larger an extension of their cloud Data center business with larger customers, but in our market, it would be very unusual for us to see Arista. As it relates to Juniper, we see them more frequently and Juniper is investing in the enterprise market, I think more heavily In the verticals where we play, I think if you read the two leaves on what Juniper said, I think they're calling the same High single digit growth from a demand perspective that we are in the near term. From a revenue perspective, they're still unloading a lot of backlog. Speaker 200:41:04Got it. Thank you. Operator00:41:07One moment for our next question. Our next question comes from Christian Schwab with Craig Hallum. Your line is open. Speaker 900:41:20Hey, great. Thanks for taking my question. So is it safe to assume that backlog is probably almost back to Somewhat normalized level since the conversation is returning to kind of pre COVID conversation, talking about A funnel and a pipeline versus previous conversations of the backlog driving material growth for a material period Time, is that fair? Speaker 200:41:49Christian, I think it's fair to say that our backlog as it relates to distribution It has normalized, but we still have a fair amount of customer backlog that's out there. And yes, I can give an example of like Kroger. We had a very large win with Kroger. They're deploying to all their stores. They don't necessarily want all of the equipment upfront at once. Speaker 200:42:13They want to time that with their deployment. So We have customer request dates, very specific customer request dates. That is one example of many. And what we've said and what continues to be the case is that we see the normalization of our backlog At the end of fiscal Q4 of this fiscal year. Speaker 300:42:38That's right. That's right. And just Speaker 900:42:40to follow-up on that, the push outs that you were talking about at quarter end, is that Direct customer push outs or is that was that unanticipated distribution channel push outs? Speaker 300:42:57Those are customer. Speaker 200:42:59Those are customer, yes. Speaker 900:43:01That's right. Okay, great. And then my last question, A return to 15% top line growth in 'twenty five With 30% of your revenue recurring, it seems like a really strong growth rate for products. So I'm trying to figure out or back into what you guys' growth assumptions For industry growth is, versus market share gains to attain that growth objective? Speaker 300:43:40Well, a couple of things. I mean, one, we'll go through the long range model next Tuesday, right, at our investor conference. So we can talk a little bit more about 25 then. Right now, we're not guiding for 25. I think the biggest point is that recurring revenue will continue to grow. Speaker 300:43:56You're seeing subscriptions grow 30% right now. And so we have to that's the gift that keeps on giving over the next several years. We think this is an air pocket as we mentioned earlier. And so we think that there will be demand coming back towards the end of this year into 2025. So that should normalize and we still have a good like we talked about pipeline And we have a building pipeline. Speaker 300:44:20And so that gives us confidence as well that this is a macroeconomic issue for a period of time and hopefully will abate Here within this year and then 2025 should be a normal more spending normalized spending year. At least that's the visibility we have right now into 2025. Speaker 200:44:41And Christian, I would point out we a lot of our confidence comes from funnel. And we mentioned that we have double digit funnel growth in terms of the year over year opportunities. And so Yes. A lot of the opportunities that are getting pushed out will come to fruition in addition to new demand. So There's a combination of our core business where we're taking share. Speaker 200:45:06If Cisco is a market proxy in terms of what they're calling, it's Low single digit. When we take share, the function is how much share. A point of market share is over 20% growth for Extreme because of our relative size. And that's in the core business. And I also mentioned, we have invested and we've just rolled out and we're in the early stage of ramping A managed services platform, there's a lot of interest in MSP. Speaker 200:45:35We're seeing a lot more people turn to MSP. We've talked about some of our other strategic investments in terms of global security compliance certifications that apply in the U. S. Market as well as targeted opportunities abroad. And we have some other interesting opportunities that are really white spaces for us where we haven't played. Speaker 200:46:00So, As we look at the components of core market taking share and then we look at New white space investments where we haven't played before and they're more commercial models. They don't require heavy investment, But it's more about relationship and go to market and these are new for us and they're just at the early stages of ramp. So those growth rates will And to Kevin's point, I would encourage And And the last point I would make is that, that subscription line is growing at 30%. Speaker 900:46:48Right. I understood that math. I Just wanted the market share gain math, which I think you, I directly understand what you're saying. Great. Thank you. Speaker 200:47:02Thanks, Christian. Speaker 500:47:04Thanks, Christian. Operator00:47:05One moment for our next question. Our next question comes from Greg Mezhninoff with Westpark Capital. Your line is open. Speaker 600:47:19Yes. Thank you. Looking at your geographic distribution, Can Speaker 300:47:25you hear me? Speaker 100:47:26Yes, we can. Yes, we got you. Speaker 600:47:27Oh, good. Okay. Got you. Okay. Looking at your Global Geographic Distribution, I think EMEA was about 40% last quarter. Speaker 600:47:37I didn't see what it was this slide. I haven't had a chance to see it yet. But Going forward, given that EMEA has been a soft area for you for understandable reasons, Market and maybe the Asia Pac markets to kind of offset To kind of channel your resources where the opportunities are still strong from a macro standpoint? Speaker 200:48:13Yes. Greg, EMEA is still hovering around 40%. I think it was 41% -ish. We talked about realigning resources and the answer is yes. We're actively managing, fortunately because of our size and because of the way we manage the business, we move very quickly. Speaker 200:48:33And Yes. We're realigning resources to drive our investment behind success, where we see the growth markets. Within a very short time when we realized what was going on here with near term demand, we made some quick decisions As we pointed out, and a lot of those decisions were around go to market. And we commented on investment in Asia Pacific. There's a lot of year over year growth in Asia Pacific for us will be higher, up over the mean overall. Speaker 200:49:08And We're looking at target investments, for example, in federal where we have significant opportunities and in other pockets. But your point is spot Yes, we're looking at realigning resources where we can drive growth in the business. And we also look at the productivity of our resources that are in the field. And if sales are off, then we have to realign those resources to make sure we're driving productivity. Speaker 600:49:36Got you. And my follow on is, Ed, you very briefly mentioned what I thought was a very interesting opportunity That you are currently in, I guess, discussions with some carriers about offering a enterprise Solution through wireless carriers. Can you give a little more color on that? Speaker 200:49:59Yes, I think we'll talk more in detail next week at our investor conference. But the bottom line is that We have some strong relationships with some very large service providers, who are dissatisfied with current networking relationships. And there's been a kind of, I'd say, mutual outreach. We see some creative ways to work with them to help them drive the profitability of their business. There's a lot of interest in this. Speaker 200:50:29It's still early innings, But the volumes and potential size of the opportunities are quite large. And So yes, there's an opportunity for us to work with them in a way where they can enhance and drive profitability and kind of reinvigorate some of their enterprise sales by replacing, I'd say, some of maybe the older, larger Networking Vendors with Extreme. And we've got a customized solution that we're working on and we'll share more details at Investor Day. Thank you. Thanks, Greg. Operator00:51:09One moment for our next question. Our next question comes from Mike Genovese with Rosenblatt Securities. Your line is open. Speaker 1000:51:26Great, thanks. A lot of my questions have been asked already, questions about your sort of new go to market initiatives and confidence that orders We'll come back. So I'll just ask, I want to kind of summarize those comments for us again. And then my second question, which I'll ask now, is If you could talk about margins, despite the revenue cut, you're still looking for Pretty good EPS growth. So just sort of go through those dynamics of what we should expect for margins a little bit more please. Speaker 1000:52:00Thanks. Speaker 200:52:03Sure. So there's what we're doing Mike, there's what we're doing in the core business to take share. My comments, I made a point of commenting on what matters the most in the market overall right now and Networks are inherently complex and in the enterprise space, people are trying to Come to grips with how do we simplify the environment and how do we make sure that we have flexibility going forward And we don't have a vendor lock situation where we get kind of stuck in a certain technology. And do we have modern networking tools? And today Extreme is by far the simplest in terms of our solutions. Speaker 200:52:53We offer the most flexibility And we have the most modern tools in terms of modern networking tools. So we become A very attractive alternative. So our share gain profile and when we're winning the kind of accounts that we're winning with the kind of names that we're winning for references, That bodes very well for us. And our customer names support our brand and support us in building our brand in the marketplace. So that's just core market share gains. Speaker 200:53:28You'll hear more about that, but we have a ton of these Larger opportunities behind this and it's kind of success begins success. In terms of the new market opportunities, Yes. A lot of enterprise customers don't want to be in the networking business, and so they want service provider or managed service providers, which are a lot of people in our channel To provide a managed service, the problem with managed services is that the platforms are really complicated and difficult to manage. And a managed service provider has to have so many interfaces into so many different clouds and into so many different portals and the billing is complicated, So we set out, over a year ago to build a managed service platform, a modern managed service platform Based on simplicity and we are we've come up with what is a very exciting platform that greatly simplifies The ability to provide a managed service from a networking perspective and all the elements that we're providing. And so there's been a huge amount of excitement around it. Speaker 200:54:31It does take a while to stand up. We started off with a goal of 5 service providers. We mentioned now we're at 7. We think that's going to scale up quite a bit and we're going to make it much easier for a managed service provider to deliver a networking experience Far easier and then with the simplicity of licensing, etcetera, the whole package will make it easier. So we're optimistic There it doesn't really affect fiscal 2024 much, but it will start to play a role in fiscal 2025. Speaker 200:55:04We talked about A private subscription offer to some very large service providers to support them in their enterprise business. Very early innings here. We have a couple of large players we're talking to. 1 specifically, it has a massive Backlog and pipeline of opportunities. So we're excited about that. Speaker 200:55:27We are investing in Fed certs. It's an area that we had underinvested in previously. We have new resources that we've hired that have uncovered some very targeted specific opportunities that we're pursuing that open up much higher than normal industry growth opportunities there. We also mentioned Asia Pacific, where we have been rebuilding that team. We have very strong leadership there and we see big opportunities And verticals like hospitality. Speaker 200:56:00And we've had a massive Yes. The largest deal ever that we've won in Asia Pacific, A $10,000,000 deal in Indonesia, we can build on that success. We're having a lot of success right now in Japan. In Korea, where we've been historically strong, we have some really large opportunities with some of the large players there. So those are the areas in terms of managed service, This global security and certification, the private offer as well as Asia Pacific Investments, The last thing that we're doing is we're about 66% of our networking gear Is licensed and runs in cloud, and we have a plan to make that 100%. Speaker 200:56:49So we see accelerated growth in subscription As we build out our Extreme Cloud, not just a cloud management platform or a management tool, but an Extreme Cloud Platform as a Service Orchestrator and we'll talk about that at Investor Day as well. Speaker 500:57:11Great. That was a lot of color. Speaker 1000:57:13Thanks for that. And then just on the margins, talk more about how the bottom line here grows Speaker 300:57:21You want me to cover that one? Speaker 200:57:22Go for it. Speaker 300:57:24Yes, I think Mike, so it's kind of rooted in our planning That's right. When we develop our annual planning process, we look at discretionary spend and what that is and our fixed spend and we understand The levers we need to pull, if we need to pull back, we can pull back on hiring, we can pull back on discretionary spend and the like, If we see the business environment changing, we were able to act quickly, which was great for us in the quarter to this kind of evolving market environment. So that's still enabling us to have a good second quarter from an EPS perspective And obviously helps us for the rest of the year as well. So I would say we feel confident in our ability to achieve that 25 Growth in EPS this year. There's not many companies out there where you can say, hey, even if your top line It's single to high teens revenue growth. Speaker 300:58:25You're still delivering 25% profitability and we've been delivering High levels of growth and profitability for quite some time for several years. And so we think that that is an important element for Shareholders to look at and realize that this company is going to get through this air pocket, still deliver good strong profitable growth this year. And then next year, we'll turn back into a more mid teens growth company and deliver that margin as well. So that's the goal. Speaker 1000:58:58Greg, can I just one quick follow-up there? Could you just talk a little bit of sort of gross margin versus Operating margin, the comments seemed to me focused more on the operating expenses, but I think that is the gross margin Speaker 300:59:15Yes, I mean, we're going to continue to look at ways of how we can continue to expand our gross margin for sure, Mike. I think we originally said that we're expecting it to be somewhere in the 62% range for the full year. We're not backing off that. We think that we will continue to see Improvement throughout the year, I don't know if it's going to be 90 basis points sequentially every single quarter, but we Are expecting that we continue to improve our gross margins throughout the year. That's going to help Yes. Speaker 200:59:47And Mike, What's implied in a 62% gross margin is obviously we end the year over that and more of a 63% range. So As it relates to gross margins, we continue to see gross margin stepping here as we come out of supply chain And as we see some of the mix dynamics as it relates to subscription, etcetera. Speaker 301:00:11Good point, Ed. Yes. Speaker 1001:00:13All right. Well, thanks for the answers. Thank Operator01:00:17you. That concludes the question and answer session. At this time, I would like to turn it back to Ed Meyercord for closing remarks. Speaker 201:00:24Okay. Well, first of all, thanks everybody for participating in the call. We appreciate your interest in Extreme. I want to shout out, we get a lot of employees and customers and partners that join as well. So I want to thank Our employees for all the hard work and customers and partners for the business relationship and the commitment to Extreme. Speaker 201:00:50As far as everyone is concerned here, we invite everyone to tune into Investor Day. We have a lot of opportunities. We're going to go into a lot of detail around the core market, the growth opportunities as well as kind of help what this looks like from a financial perspective. So we invite everyone to participate And we hope to see you there. I'll reiterate, we see this as aRead morePowered by