Extreme Networks Q3 2025 Earnings Call Transcript

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Provided by Quartr
April 30, 2025

Key Takeaways

  • Revenue in Q3 reached $284.5 million, up 35% year-over-year and marking the fourth consecutive quarter of sequential growth, with product bookings at a six-quarter high.
  • Extreme secured large competitive wins against Cisco, HP and Juniper in key accounts—like City of Everett, West London NHS and two Japanese government agencies—leveraging its campus fabric and cloud zero-touch solutions.
  • Subscription and SaaS ARR grew to $184 million (+13.4% YoY) and deferred recurring revenue hit $578 million, while early adoption of the new AI-driven Extreme Platform One has already attracted ~100 subscribers.
  • Management raised Q4 revenue guidance to $295–305 million and full-year outlook to $1.128–1.138 billion, forecasting improved margins (61.8%–62.8%) and EPS of $0.21–$0.25.
  • The balance sheet strengthened to a net cash position of $3 million, generated $30 million in operating cash flow, and the board extended the share repurchase program by an additional $200 million over three years.
AI Generated. May Contain Errors.
Earnings Conference Call
Extreme Networks Q3 2025
00:00 / 00:00

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Operator

Thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Extreme Networks Q3 FY 'twenty five Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would like to hand the call over to Stan Kovler, Senior Vice President, Corporate Development and Investor Relations. Stan, you may begin your conference.

Stan Kovler
Stan Kovler
SVP of Corporate Development & Investor Relations at Extreme Networks

Thank you, Ian. Good morning, and welcome, everyone, to Extreme's third quarter fiscal twenty twenty five earnings conference call. With me today are Extreme Networks' President and CEO, Ted Meyercord and Executive Vice President and CFO, Kevin Rhodes. We just distributed a press release and filed an eight ks detailing Extreme Networks' financial results for fiscal Q3. A copy of the press release, which includes our GAAP to non GAAP reconciliations, and our earnings presentation are available in the IR section at extremenetworks.com. Today's call and Q and A may include certain forward looking statements based on our current expectations about Extreme's future financial and operational results, growth expectations and strategies. Our financial disclosures made on this call will be 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 that can cause actual results to differ materially from those anticipated by these statements. These risks are described in our risk factors in our 10 ks and 10 Q filings, and any forward looking statements made on this call reflect our analysis as of today.

Stan Kovler
Stan Kovler
SVP of Corporate Development & Investor Relations at Extreme Networks

We have no plans to update them except as required by law. Following our prepared remarks, we will take questions. And now I will turn the call over to Extreme's President and CEO, Ed Meiercord.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Thank you, Stan, and thank you all for joining us this morning. Revenue in the quarter reached $284,500,000 representing a 35% increase year over year, growing sharply in EMEA and Americas regions with a particularly strong performance in The Americas sequentially up 21% from the prior quarter. We're seeing robust demand across both our wired and wireless network solutions. Revenue grew sequentially for the fourth quarter in a row, driven largely by product revenues and we achieved our best quarter of product bookings in six quarters. We're encouraged by new logo wins and the growth in average deal sizes.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

This quarter, we had 40 customers generating over $1,000,000 in bookings, up from 36 last quarter. This highlights our move upmarket with success penetrating larger enterprise customers across all our industry verticals. Our competitive position continues to strengthen with significant wins against major players in key accounts such as City of Everett, Washington, West London NHS Hospital and the United Soccer League and two major government agencies in Japan. We're seeing customer behavior patterns shift towards larger, more comprehensive deployments. And looking ahead, we have strong confidence in sustained customer demand based on our Q3 funnel generation and with continued strong growth in our pipeline.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Our competitive win rates are on the rise across a variety of verticals. We're displacing major players like Cisco, HP and Juniper, largely due to our highly differentiated campus fabric solution, the simplicity of our cloud solution and our flexible licensing. When customers see the impact of Fabric's unique features like sub second convergence, the unmatched security benefits of micro segmentation and the ease of deployment with automated zero touch provisioning, Extreme becomes an easy choice. One higher education customer recently told us with zero touch provisioning, automatic configuration and unified network management across 14 locations, they've been able to reduce IT workloads by almost 50%. If enterprise customers spec our technology, competitors cannot match these features with their limited IP data center fabric and it causes them to drop out of the competitive pitch.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

In the quarter, customers such as Ferrovia Nord, an Italian transport company overseeing 120 regional railway stations covering provinces such as Milan, Varese and Como chose ExtremeCloud and Extreme Fabric to streamline network management, ensure consistent performance in low latency and create secure network segmentation across its sites. The City of Everett, the seventh largest city in Washington State, upgraded its network and moved to a flexible cost effective network infrastructure as a service model from Extreme. During the upgrade, they can continue to manage aging third party devices with ExtremeCloud IQ while automating and provisioning new devices with Extreme Fabric, making it fast and easy to upgrade with no downtime. Also, Duquesne University chose Extreme Fabric and Extreme Cloud IQ because the streamlined way Fabric will help minimize some of the IT team's most arduous tasks. HP Hood, a large dairy company in The U.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

S. Recently upgraded to Extreme Cloud to manage operations across its 20 manufacturing and distribution center. Extreme's seamless integration with Zebra devices was a significant factor in winning that deal. We continue to expand our footprint in the Six Flags theme parks with new deals in Six Flags Magic Mountain in Fiesta, Texas, each deployed ExtremeCloud alongside a new six gigahertz wireless network, which will create real time monitoring and management of rides to reduce downtime, deliver more efficiency in park infrastructure and reduce operating costs. They're also receiving Extreme's premier white glove professional services for installation.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

We also had a nice win with a large law firm in North Carolina, which has 24 offices and more than four fifty employees. They were using legacy HPE infrastructure, which made it very difficult for their team to manage the network across several locations. With Extreme Cloud and Universal ZTNA, they'll be moving operations to the cloud, simplifying the IT and employee experience and increasing security of their network. Extreme's use ZTNA SaaS solution is gaining momentum with strong interest from customers in education, manufacturing, healthcare and financial services. It combines mature network access control with zero trust remote application access.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

We're also seeing strong momentum with our commercial models. We added 11 new partners to our MSP program this quarter, bringing the total to 48. We offer the industry's first consumption based billing model, eliminating upfront costs and ensuring cost predictability. Our unique poolable licensing lets MSPs flexibly allocate licenses across devices, locations and customers, making it easier than ever to scale. In the quarter, we made Extreme Platform One available for MSPs.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

With everything centralized, Platform One helps MSPs gain a comprehensive view of each client's network health performance and security status. The VP of Technology Alliances at our partner Logicali said, with Extreme Platform One, we can efficiently manage all of our clients under one platform, which will significantly reduce the time and IT staff required to maintain operations. On the innovation front, early indications from customers and partners reinforce that Extreme Platform One will be a game changer. It's the first solution that offers holistic AI for networking. It drives significant automation by leveraging AI agents that assist in tasks across the entire network lifecycle from planning and deployment to management and remediation, reducing the time to complete complex tasks from hours to minutes.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

As enterprise teams feel pressure from executive leadership and their boards to leverage AI to drive operating efficiencies, Extreme Platform One will provide the most modern tools to achieve this objective. According to a survey we conducted with 200 C level executives earlier this year, 89% are ready to invest in a platform for AI networking and security. Earlier this month, we made Extreme Platform One available to E Rate customers. To date, we have approximately 100 customers that have subscribed to the platform. And we're excited to share more details about Extreme Platform One at our oversubscribed Connect user conference in Paris, which is happening next month.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Our customers are enjoying the best quality products in Extreme's history. We see this in our data and our financial results as well as service costs, which are running at record lows and customer satisfaction, which runs consistently at high levels. We anticipate further market share gains and revenue growth for the full year and continued strength in Q4. We expect this growth to be accompanied by increased margins and cash flow for the full year. And with that, I'd like to turn the call over to our CFO, Kevin Rhodes, to walk us through the results and guidance.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Thank you, Ed. This quarter marked the fourth quarter in a row of sequential growth and our strong gross margins coupled with operating expense control demonstrated the significant operating leverage in our model. We achieved earnings per share of $0.21 in line with the prior quarter, up significantly year over year as well as exceeding the high end of our guidance range. Customer demand trends continue to improve, particularly with large customers. I'm happy with our financial results for the third quarter, defying normal seasonality and demonstrating continued momentum across our business.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Total revenue for the third quarter reached $284,500,000 up 2% sequentially and an impressive 35% year over year. Product revenue increased to $178,100,000 up 3% quarter over quarter and 67% year over year with wireless solutions showing particular strength growing 12% sequentially. Our subscription business continues to grow double digits with SaaS annual recurring revenue reaching $184,000,000 up 13.4% year over year. Total deferred recurring revenue grew 7% year over year to $578,000,000 reflecting the strong momentum in our recurring revenue model. Overall, recurring revenue was relatively stable at 35% of total revenue in the quarter as a result of rising product revenue.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

The strength of our execution is evident in our financial results with particularly strong performance in the Americas region, which grew 19% year over year. EMEA revenue grew 81% year over year due to improved macro and channel inventory. APAC was flat year over year in revenue. However, bookings were up double digits. Overall, this is the best bookings quarter in the past six quarters.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Product bookings grew high single digits, similar to what we called in our long term range, and we see continued strength in our pipeline this year. Trends were in line with our revenue during the quarter, and the product backlog was once again within our expected range. I'm particularly pleased with our performance in new subscription bookings, which bodes well for an acceleration of SaaS ARR going forward as new subscription bookings will continue to grow with the adoption of Platform One going forward. On a product basis, bookings were ahead of the previous five quarters, driven by continued strength in Wired. By industry, government, transportation and logistics, manufacturing, and sports and entertainment verticals all grew strong double digits, both year over year and sequentially.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Within Education, K-twelve bookings, including E Rate, also grew double digits over both periods. In fact, our E Rate filings were up double digits from the prior year, and we believe we are gaining market share in this segment even though it accounted for less than 5% of total bookings in the quarter. All in, we are well diversified across a variety of other verticals. Total subscription and support revenue was $106,400,000 similar to the second quarter. Our recurring revenue growth has been driven by the strength of our cloud subscription revenue in the past.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Gross margin for the quarter was 62.3%. While this represents 110 basis point sequential decrease, it is up four seventy basis points year over year on a reported basis or 120 basis points on an adjusted basis for E and L. Product margin came in at 58% and subscription and support margin remained strong. These margins reflect our continued focus on operational efficiency and product mix optimization along with lower freight costs. We're also buying less inventory and have reduced the overall inventory quarter over quarter, yet we still have ample supply of finished goods and raw materials to mitigate against any potential tariff risk.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

The structural improvements we've made to our portfolio within our universal platform have resulted in improvements in the product quality, lower service costs and lower remediation costs that are also benefiting our customers. The combination of higher product revenue versus subscription and support did have a small impact on sequential results. We also expect our gross margin to be in a range of 61.8% to 62.8 in the fourth quarter of fiscal twenty twenty five, also owing to higher product revenue mix expectations. Non GAAP operating income was $40,000,000 in the quarter, representing a 14.1% operating margin. Operating expenses were well managed at $137,300,000 This demonstrates our commitment to operational discipline while continuing to invest in growth initiatives.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

During the quarter, we maintained our strategic investments in R and D and marketing to support our product innovation and market expansion efforts. We expect operating expenses to increase to a range of $143,000,000 to $145,000,000 in the fourth quarter of fiscal twenty twenty five. Sales productivity and better efficiency from our new commercial models are driving some of this updated outlook. We continued our commitment to returning value to shareholders through our share repurchase program as we repurchased $13,000,000 worth of shares during the quarter. And in addition to our remaining authorization for fiscal twenty twenty five, the Board recently authorized another $200,000,000 of buybacks for the next three years starting in fiscal twenty twenty six.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Turning to our balance sheet and cash flow metrics, I'm pleased to report significant improvements in our financial position. We've successfully transitioned to a net cash position of $3,000,000 as of March 31, a notable improvement from our net debt position of $15,000,000 at the end of the year end December. Our disciplined financial management improved our cash conversion cycle by a remarkable twenty nine days. This reduction demonstrates our enhanced operational efficiency and working capital management. As a result, we generated robust operating cash flow of $30,000,000 during the quarter contributing to our strengthened liquidity position.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

We expect a continued improvement in cash flow in the fourth quarter as we continue to grow revenue again and also improve profitability. The combination of strong cash generation, improved working capital management and disciplined cost control positions us well for sustained financial performance and continued investment in growth opportunities. Now turning to guidance. We are encouraged by the level of customer engagement and growth in the funnel that we are seeing, which should bode well for us heading into the final quarter of this fiscal year. As a result of our improved visibility, we are increasing our full year guidance and providing a slightly narrower revenue range for the next quarter.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Our supply chain optimization efforts are paying off and strategic pricing adjustments can be made to mitigate any potential tariff impacts. To date, we have not seen any negative impact on the demand side of the equation related to tariffs. Therefore, we believe we are well positioned to capitalize on the trends that we are seeing and deliver sustained growth in the coming quarters. For the fourth quarter, we expect improved guidance as follows: revenue to be in a range of $295,000,000 to $3.00 $5,000,000 gross margin to be in a range of 61.8% to 62.8%. At this point in time, we estimate the impact of tariffs on our P and L will be fairly negligible at approximately $1,500,000 in the fourth quarter and a similar amount going forward.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

This expectation is currently included in our guidance. Operating margin is expected to be in a range of 13.3% to 15.3% and earnings per share is expected to be in a range of $0.21 to $0.25 Our fully diluted share count is expected to be around 134,200,000.0 shares. For the full year of fiscal 'twenty five, we expect revenue to be in a range of $1,128,000,000 to $1,138,000,000 And with that, I'll now turn the call over to the operator to begin the Q and A session.

Operator

Thank Our first question comes from the line of David Vaught with UBS. Your line is open.

David Vogt
David Vogt
Managing Director at UBS Group

Great. Thanks guys and thanks for taking my question. Ed and Kevin, you mentioned you're not seeing any weakness or any impact from the tariffs. Can you maybe walk through some of the feedback that you're getting from customers to date, what they're thinking, how they're thinking about the next six to twelve months? Then on the tariff impact that Kevin referenced that $1,500,000,000 in the fourth quarter and going forward, it sounds like that's going to be the run rate next year.

David Vogt
David Vogt
Managing Director at UBS Group

Should we think about that as being sort of a just a gross margin headwind as we go into fiscal twenty twenty six next year? And what are the offsets that you could potentially use to mitigate that incremental $6,000,000 of hit to COGS? Thanks.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Let me thanks David for the question. Kevin, I'll kick it off and then I'll let you pick it up. Mario, a bit of an echo here on the line. Yes. So David, the tariff situation is very dynamic, I think, as everybody knows and can appreciate, and it's kind of hard to call.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

There was concern initially given the magnitude of tariffs. Keep in mind that our manufacturing on the cost side of the equation, we have Taiwanese ODMs with and historically factories were in China. We moved out of China to Taiwan, Vietnam, Philippines and Malaysia in partnership with our manufacturers. And obviously, they were slapped with very large tariffs that looked pretty scary. They were put on hold.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Our category was exempt. And so currently, there's there's minimal impact to our business. At the same time, all of these countries are in active negotiations with the Trump administration, and our understanding is that they're gonna strike a deal that and and the indication is that it's it's it's going to be somewhat status quo. We won't know for sure until this ninety day window in the July ends, and we have finality to that. So one of the things that we've done as a company is we've come out and we've guaranteed customers current pricing through the end of the quarter.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

We're the only player in the industry that's done that. But it's been very well received by partners and customers. We have seen, I would say, minor early buying for customers that want to get ahead of tariffs and mitigate risk of potential price increases. And so it's somewhat of a fluid situation there. The larger question is, will all of the changes globally in trade and tariff policy have an impact on demand?

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

And that's hard to call at this point. And we're going to hold as far as providing guidance or judgment on that until we have finality come July. Kevin, do you want to add to that?

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Yes. Sure, Ed. I think on the latter part of the question around the $1,500,000 and any mitigation there, right, David? So yes, we baked that into the fourth quarter guidance. As Ed said, we're holding on the price increases right now.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Obviously, the most obvious mitigation strategy there would be as we get more color and more visibility into whether they might be permanent or not, we can always raise prices. It would be a small price to raise offset that $1,500,000 per quarter. But right now, in the fourth quarter, we kind of took the adjustment, if you will, in the fourth quarter. I would say, in general, we're feeling good about where we are right now, and we're not seeing a lot of impact on the demand, which is what we commented on. And then obviously, we have plenty of levers to pull if we need to in order to offset, I guess.

David Vogt
David Vogt
Managing Director at UBS Group

And Kevin, just to clarify, so eating it in the fourth quarter, the gross margins would be basically flat sequentially ex the tariffs impact?

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Yes, that's correct, David. Yes, it's about 50 basis impact on the quarter that we've baked into our guidance, But obviously with EPS being higher than Q3, we're still showing continued improved profitability there.

David Vogt
David Vogt
Managing Director at UBS Group

Great. Thanks for the color guys.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Thanks, Steve.

Operator

Our next question comes from the line of Michael Genovese with Rosenblatt Securities. Your line is open.

Mike Genovese
Senior Research Analyst at Rosenblatt Securities

Great, thanks. I guess any more color on sort of competitive trends broken out between Cisco, Juniper, HP, anything involved in the last quarter that was different than before?

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Yeah. Thanks, Mike. I can take this, Kevin. Yeah. I think you've seen HPE is, I think, struggling quite frankly.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

And I think if we had to provide commentary, we'd say that they're probably losing share in the marketplace. The fact that their deal is held up, the fact that they had to pay such a high price for Juniper on an inflated demand curve. And I think now that they're well over a year into the process and have a trial coming up in July has created some issues for them in the market and in the channel. They still very much want to get the deal done. We've seen Juniper get a little more aggressive in pricing to win business.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

They're somewhat in the same situation as HPE because they're stagnant. They can't provide real guidance to the channel or customers as to the future of the product roadmap, the technology, the solutions. They just they don't know. So that's helpful to us. I think we would expect that if the deal goes through there to be a lot of changes that take place.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

And either way, our view is that it's a positive for Extreme. Cisco has actually been pretty strong and competitive in the marketplace, hanging on to their market share. And I don't really have a lot to report on that front, except for the fact that with their focus as it relates to Splunk driving SaaS revenue, observability, security, they seem to be moving away from or less focused on enterprise networking, and there are solutions there. This is what we hear from customers and partners. They remain the most complicated, unintegrated and expensive solution in the marketplace.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

And so the chorus of dissatisfaction from Cisco continues to grow. And the larger deals that we're talking about, in most cases, are competitive wins from Cisco. And the final comment I'll make is that Cisco has said that they're overhauling their partner program. Keep in mind, we sell and the industry sells through the channel, the partner channel, to 85% of our business. And anytime you go through a massive restructuring of your channel program, there are gonna be winners and losers in that.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

And any kind of disruption, you know, we're Extreme will be right there to try to to around the edges to to to pick up new partner relationships to drive share gain.

Mike Genovese
Senior Research Analyst at Rosenblatt Securities

Great. Thanks, Ed. That's a lot of great color. Very helpful. And Kevin, I guess I just have to ask.

Mike Genovese
Senior Research Analyst at Rosenblatt Securities

I mean it's great that SaaS ARR is in the double digits, but to see bigger numbers going forward, bigger double digit numbers year over year growth in SaaS potentially in the fourth quarter and going into next year? What should we be looking for to drive that?

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Yes, Mike. A couple of things here, right? One, we actually had very good bookings on on our SaaS subscription, in the quarter. Of course, that will take a little bit of time to work itself into revenue, but that was up 29% year over year. So we were happy about that.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

The second thing is, as we talked about platform one, right, has a combination of subscription and support in it. It's got a higher ASP. It also has expected expected higher, attach rate to it as well. That's gonna start to drive more, you know, subscription overall, and that's a combined just a reminder, that's support and subscription along with AI. So all of those those features all combined in one subscription, model, and so that's gonna drive, subscription ARR over time too.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

So I'm optimistic about what that growth rate looks like in the future. I know it's been somewhat flattish overall as a revenue line item, but I think it will grow over time.

Mike Genovese
Senior Research Analyst at Rosenblatt Securities

Perfect. I'll pass it on. But nice to see the performance, and please keep it up.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Thanks, Mike.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Thanks, Mike.

Operator

Our next question comes from the line of Christian Schwab with Craig Hallum Capital.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Great.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Great quarter. Ed, thank you so much for the additional color on the competitive position in Cisco and HP and Juniper and how you're positioning there. I'm just wondering if you could just elaborate one step further, given your, you know, stronger success with larger customers in competitive wins versus, you know, your three top competitors. I'm wondering if you could just, you know, give us some further color on what you believe or what your customers are saying regarding the total cost of operation is and your competitive advantage versus them? I imagine, you have some color there and why you're seeing success with, large customers in particular.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Sure, Christian. Thanks for the question and for joining us. Yeah. The big differentiator for us today is our fabric technology, which is unique in the industry. It's it's it's novel.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Most fabrics in the networking industry are designed for data centers and and and and managing, you know, all the traffic flows, you know, inside of the walled, secure data center. When we acquired Avaya, which had sort of the Nortel technology, they had invested heavily in. And since, we have invested heavily in a campus fabric, which is very different. And it's designed specifically for these large enterprise campuses. So when we win Washington University, when we win John Deere, when we win win resorts and casinos, when we win these these these larger deals, this fabric gives us the capability to provide significant advantages in automation and deployment, the zero touch provisioning, the elimination of constructing and building VLANs and deployment environments.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

We're also able to segment the network into take a a single physical network, and you can slice it into literally thousands of networks. And and each network can have its own SLA. And importantly, because of the way the technology works, you we're we're with the segmentation capability, we we hide IP addresses, effectively, you can't it it brings significant security benefits. So speed to provisioning the security benefits, and the ease of deployment and creating networks within a network, which is so valuable. And then finally, the resilience of our fabric.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

We talk about sub second convergence. Our competitors can't do it. So if if we get in and if we can convince customers to spec the performance, just the performance of our fabric technology, we win every time. And customers that buy our fabric, are very loyal. Most people don't believe the benefits that that we we talk about in terms of what we're pitching.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

When they see and they they try and they test our technology, you know, physically hands on, they're kind of blown away. And then they become very religious about it. And so this is this is a primary differentiator for us. When we get into competitive processes, if we could convince customers to try out our fabric, they're kind of blown away and that's what's driving larger deals and higher win rates. The simplicity of our cloud solution is also a big factor.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

And as we look at Platform One, as you know, Christian, we were not investing in networking for AI. We that strategically was not where we've been investing, but we have been investing heavily in AI for networking. And today, there's not a single organization where leadership, boards, management are not pressuring saying, how are you using AI to drive efficiency in the organization? Well, we are positioned to be that player to provide the tools and the platform for all the enterprise customers out there to leverage our tools to answer that question and say, yeah. We're leveraging AI.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

We're using Extreme, and we're going to be that go to provider for AI and networking. So I'd say it's those two trends. It's the differentiation of our fabric. And by the way, that fabric technology will be available to be managed and visualized from Extreme platform one, which is also a game changer. So it's fabric and then AI for networking and our differentiation and what we believe will be a significant leadership position ahead of our competition in enterprise.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

So these are the are the big drivers right now in the marketplace. And, you know, I'd say our competitive position, you know, we feel very good about our competitive position.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Fantastic. Thank you. And just one quick follow-up question or a a second question is, do you have any update on customer adoption and what you're seeing regarding WiFi seven?

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

I would say it's it's according to I'd say it's it's moving according to plan. Wi Fi seven, the advantages of Wi Fi seven are around performance. I'd say bandwidth and performance. Years ago, Christian, there was a lot of discussion about public, private cellular networks in five gs. The performance and the quality of WiFi seven has kind of obviated that discussion.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Because the performance is so strong, we're seeing enterprises adopt WiFi seven for mission critical solutions that historically they might not have been confident using WiFi. So I'd say it's progressing. Kevin, you can jump in if you want to add commentary here, but I think it's yeah, the adoption is strong. The quality is a lot higher in terms of the user experience. For us, I'd say it's according to plan.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Yes. I agree. It's tracking in line, and I would say the adoption is in the teens. So that's good.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Great. No other questions. Thanks, guys.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Thanks, Christian.

Operator

Our next question comes from the line of Ryan Kunst with Needham. Your line is open.

Ryan Koontz
Senior Analyst at Needham & Company

Great. Thanks for the question and all the great color here post prepared remarks. Maybe double clicking here on your channels and kind of your view from a regional perspective, Europe versus North America inventory and kind of enterprise versus public. What kind of feedback you're getting from channels? And what kind of demand are you seeing?

Ryan Koontz
Senior Analyst at Needham & Company

You mentioned a little bit of a pull forward perhaps in the third quarter. Any more color that you can give us would be appreciated. Thank you.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Yes. Thanks, Ryan. I guess I should reiterate that the pull forward in Q3 was very minor. We there wasn't a big move there. And I would say, across all of our geos.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

But and it's I wouldn't say that's a major factor yet. It could be depending on how the tariff situation evolves. The macro situation in the industry has improved. A year ago, the whole industry was correcting an oversupply situation, and we had to let product drain out of the channel. We feel like we've worked all the way through that now, and you can see that in the quarter over the year over year compares quarter over quarter.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

So that so as the channel has drained, we've seen kind of real demand return back into the marketplace, which has been very helpful and positive to the business. We've had strength in Americas. On the Extreme side, a lot of this has to do with the quality of our execution as a company in taking share. We've reorganized a year ago. We have new leadership in sales and new processes that we're driving.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

We have enhanced programs that we're going be rolling out to the channel and significantly improved and enhanced marketing. And the alignment between our sales and marketing is really an execution driven improvement and performance from the Extreme perspective. The macro here has continued to be solid for networking. If you survey CIOs, demand for networking and demand for AI is very high and consistent. When you think about it, everything runs on the network.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

So people have to continue to modernize and invest there. We believe we're going to have tailwinds going forward from Europe. We're heavily concentrated in the Dock Region, which is Germany, Austria and Switzerland, primarily Germany. Germany has has been a a major headwind over the past year because of their their own issues, the government issues there. They they they they couldn't form a coalition. They dissolved the government. They froze government spending. They had snap elections. They've reformed the government.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

They have a coalition. They've raised the the deficit spending ceiling, and they have a budget. And so now we're going to see a resumption of spend in that market. That is our largest market, it's where we have the highest market share in the world. So we're very encouraged by what we expect to see coming out of Germany.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

We'd like to see it happen faster, but it is a tailwind that's coming out of Germany. The other thing that we've done is we have some unique wins. We highlighted in Japan, the government ministry is there. We're having some of the largest wins in our company history in that market. And our unique fabric deployments and the solution that we built for that the government there is creating some really interesting opportunities and growth opportunities there.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

So we've seen a resurgence in Asia Pacific being led through Japan, and we expect to see EMEA nice tailwinds in Europe in general. I'll also mention in The U. S, the E rate business, we had a very strong E rate cycle, up double digits in terms of our wins and funding cycles are continuing unabated. And we just had our largest funding wave in company history last week. So we're feeling good about the macro trends here as we go into Q4.

Ryan Koontz
Senior Analyst at Needham & Company

That's great. Thanks for all that color, Ed. And Platform One, are you seeing early traction there across any particular geos?

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

I'd say it's across the board, Ryan. It's we made Platform one available for early quoting. We had to do that for the E Rate cycle, that's giving us an early indication of demand for Platform One. And there, as we said, we have approximately 100 customers that have signed up for Platform One, and we've opened it up for, you know, the the the platform one workspace for MSPs, and the feedback we're getting there is encouraging. Our MSP business is is is weighted more heavily in Europe.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

And then so I think it's I'd say it's across the board from a geo perspective. And where we've rolled out Extreme Platform One early, we've had very favorable response, both again, that E Rate segment and as well as MSPs. We're targeting our fiscal Q1 for the official launch of the platform.

Ryan Koontz
Senior Analyst at Needham & Company

Perfect. Thanks for the color.

Operator

Our next question comes from the line of Dave Kang with B. Riley. Your line is open.

Dave Kang
Senior Analyst at B Riley Financial

Thank you. Good morning. First, a clarification. So regarding this tariff impact of $1,500,000 I guess that's about 50 bps hit on gross margin. I assume that's in your fiscal fourth quarter outlook. Is that correct?

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

That's correct, David. That's what I said. Yes, included.

Dave Kang
Senior Analyst at B Riley Financial

Okay. Got it. Thank you. And then regarding manufacturing, I think you went over it already. But just regarding your contract manufacturers, I assume they have a global footprint and wondering if they have any U.

Dave Kang
Senior Analyst at B Riley Financial

S. Manufacturing facilities. For example, Sanmina said the other day that they are planning to expand their U. S. Footprint. Just wondering what your CM's situations or plans are.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Yes. Good question, Dave. And the answer is no. Our ODMs do not have plans to open manufacturing here in The U. S.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Will say our expectation is that from a tariff perspective, we are expecting that they will get resolved with the Trump administration. The supply chain for our technology, and it's not just Extreme, it's the entire industry, it's going to be very hard to replicate that supply chain in The US at prices and costs that are competitive. We would expect that to take a long time and would not impact near term results.

Dave Kang
Senior Analyst at B Riley Financial

Got it. And my last question is regarding the government vertical. I know government, you're more of a state and local, but do you have any federal U. S. I mean U.

Dave Kang
Senior Analyst at B Riley Financial

S. Federal programs? And can you provide any update or color?

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Yeah. Our federal business is we we view federal as an opportunity. One of the things we didn't highlight on the call is that we've invested in certifications so that we qualify for federal government projects. And we've completed some of these certifications, which is opening up new opportunities for us in the federal space. But if you look at our results for the quarter and for the last year, our federal business is really immaterial.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

So this, for us, is more of a growth opportunity where we're looking at cloud, we're looking at our fabric differentiation. And with new certifications, you know, we're we're we're creating new opportunities. So for us, it's more of a growth vector. One of one of our federal know, we we have partners that we work with. And as as the government is looking for new ways to drive better outcomes and to change current practices with with new vendors to drive savings and efficiencies, that puts Extreme in a pretty good position.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

So we're kind of excited about that the potential growth that we have in federal despite what's going on from a macro perspective vis a vis gross spend perhaps.

Dave Kang
Senior Analyst at B Riley Financial

Got it. Thank you.

Operator

Our next question comes from the line of Eric Martinucci with Lake Street Capital Markets. Your line is open.

Eric Martinuzzi
Senior Research Analyst at Lake Street Capital

Yes. I appreciate the insight on the early buying, the small amount of early buying by your customers. What about your own inventory planning? Are you buying ahead? I realize it might not be something that runs through the P and L in Q4, but might impact cash.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Yes, Eric. I'll cover this one. The good news is, right, you're starting to see our inventory levels, our own inventory levels come down. We've already normalized at the channel level, but even our own inventory, we're starting to get better working capital optimization there. I think I said in my prepared remarks, we have kind of curtailed some of the buying that we have because we had a lot of finished goods and raw materials that we were still working through.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

But the reality is that's obviously a working capital improvement story for us going into the fourth quarter as we continue work to normalize that. So I would say we're still doing well there, and we've got plenty of inventory that's non tariffs that we can continue to sell into the market. That's what gives us confidence to not raise price in the fourth quarter. And then we'll assess again when things at the tariff level start to normalize and we figure out where that looks in July.

Eric Martinuzzi
Senior Research Analyst at Lake Street Capital

Okay. And then on the OpEx side, you mentioned $137,000,000 was the non GAAP OpEx number in Q3. That's going up to 143,000,000 to $145,000,000 In Q3, had you for a little bit more than that. I was higher than where you guys actually came in. Is there an expectation that one forty three to one forty five that you're gonna be investing in r and d personnel or sales personnel?

Eric Martinuzzi
Senior Research Analyst at Lake Street Capital

Or is that just all tied to kind of fiscal year end variable comp?

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Right. There's a couple of things in there. Right? The Connect conference, Ed mentioned, you know, the oversubscribed Connect conference in Paris. We're gonna have a thousand attendees there.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

That's one of our larger marketing events and customer events for the year. So that's baked into the one forty three to one forty five numbers. And that's that's a good, you know, I'll say a couple million to a few million dollars of expense that we have in the fourth quarter. And then naturally in our fourth quarter where we've got higher revenue coming through that we're expecting right now, we'll have higher commissions in the fourth quarter that we're also baking into our guidance there. So those are the probably the two major reasons for the increased OpEx.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

We are continuing to make growth investments in areas, you know, both sales, marketing, as well as innovation. But, you know, as as you know, we've been very prudent throughout the the year on that to try and drive more and more profitability. And I think I'm just happy where we are from a contribution to the bottom line and seeing that the top line kind of contribute to the bottom line because we've kind of maintained a lot of our OpEx to be fairly flat even though we're driving more revenue growth and more renovation as a company. We've done a good job there.

Eric Martinuzzi
Senior Research Analyst at Lake Street Capital

Got it. Thank you.

Operator

Our next question comes from the line of Tim Horan with Oppenheimer. Your line is open.

Timothy Horan
Managing Director at Oppenheimer & Co. Inc.

Thanks guys. Can you give us a sense of how big your data center business is now and kind of how that's trending? And secondly, on the go to market, are you seeing actual improvements per salesperson at this point in terms of bookings and productivity?

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Thanks. Well, and if you want to get a come from behind, our data center business is Tim, it depends on what your definition of a data center is. So for enterprise data centers on prem, that's in terms of how we look at that business, that's probably and I'm going to provide a range, Kevin, and you can back me up, but I'm going to say kind of 10% to 15% of our overall business. As I said before, we're playing more on that on prem data center for enterprise customers in general for the broader market.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

We have specific applications. We have with Ericsson, with Verizon. We have a unique, yeah, high end, and we had our four our first four hundred gig sale, which is a very specific use case for Ericsson and and what we would consider more of the the the service provider category, which, you know, for us is just a very targeted kind of, you know, niche opportunities. You know, more broadly, we are refocusing on the evolution of the enterprise data center and the requirements and what we believe how that will evolve. From a productivity perspective, look, we're expecting as we move up market and we sell larger deals, that brings productivity to us. As we improve our partner programs and business through the channel and the channel generates business for Extreme, that drives productivity. So I think we believe that we have an opportunity for productivity gains as we go forward.

Timothy Horan
Managing Director at Oppenheimer & Co. Inc.

Great. And then just any more clarification Kevin,

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

don't know, if you want comment or provide any more specificity on the data center side.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

Ed, I think you nailed it. That's the range. I think you're right. It's a little less than 15%. It's between 1015%.

Timothy Horan
Managing Director at Oppenheimer & Co. Inc.

And I guess do you expect that business to grow faster than the overall company? It seems like data center space is pretty hot right now.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Yeah. I for us, our, yeah, our success has really been driven, as I mentioned before, Tim, by, you know, our our fabric technology and, you know, and and cloud. And and that tends to be more, you know, campus oriented. Where it gets a little fuzzy is that campuses have data centers. And then the question is what's your definition of a data center?

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

So, you know, it clearly, it's not, you know, hyperscale. And then one of the nice things about our fabric technology is it extends from the enterprise data center and, you know, the core of a network all the way out to the edge and actually, you know, for the application that we built for the Japanese government across the wide area network, across SD WAN. So the the the fabric is is a great, you know, campus technology from the data center all the way out to the edge, again, that our competitors, don't have, it gets a little fuzzy when you start trying to define what is that data center because some can be smaller and some might consider it to be more of kind of a a campus core network, which, you know, is a little bit different. So, we're looking at the campus enterprise. And to the extent that the data center is on campus, that would be included and where we're expecting growth.

Timothy Horan
Managing Director at Oppenheimer & Co. Inc.

Very helpful. Thank you.

Kevin Rhodes
Kevin Rhodes
Executive VP & CFO at Extreme Networks

And Ed, you might just want to add that we're coming out with a 400 gigahertz switch at the end of the summer, that that will actually be part of data center for enterprises as well.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Yes. Yes.

Operator

And there are no further questions at this time. I'd like to hand the call back over to Ed Mayacourt, President and CEO, for closing remarks.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

Ian, thank you, and thanks, everybody, for attending the call. I want to shout out to employees, customers, partners who may be listening in, employees especially for their hard work extreme. We fight above our weight class, and that's really due to all the hard work of the employees at the company. I'll also mention that we I'll encourage people to tune in to connect. We're less than three weeks away.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

We're in Paris. We have over 1,000 people in attendance. This is by far our largest user conference, and it's fueled by interest in Extreme Platform One as well as Fabric. But there's a lot of content there. It's going be a very full session, but we are going to record and broadcast some of the main stage presentations.

Ed Meyercord
Ed Meyercord
President & CEO at Extreme Networks

So I would encourage investors to tune in. There's going to be some really interesting reveals as far as our technology innovation as it relates to Extreme platform one. So with that, thank you for participation, and have a great day.

Operator

This concludes today's conference call. You may now disconnect.

Executives
    • Stan Kovler
      Stan Kovler
      SVP of Corporate Development & Investor Relations
    • Ed Meyercord
      Ed Meyercord
      President & CEO
    • Kevin Rhodes
      Kevin Rhodes
      Executive VP & CFO
Analysts
    • David Vogt
      Managing Director at UBS Group
    • Mike Genovese
      Senior Research Analyst at Rosenblatt Securities
    • Christian Schwab
      Senior Research Analyst at Craig-Hallum Capital Group LLC
    • Ryan Koontz
      Senior Analyst at Needham & Company
    • Dave Kang
      Senior Analyst at B Riley Financial
    • Eric Martinuzzi
      Senior Research Analyst at Lake Street Capital
    • Timothy Horan
      Managing Director at Oppenheimer & Co. Inc.
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