EXTREME NETWORKS INC Q1 FY2025 earnings call

• Q1 results were ahead of plan, with early stages of networking market recovery, higher new logo win rates, and large projects closing earlier than anticipated.
• SaaS ARR grew 23% year-over-year, driven by enterprise campus solution differentiation, including cloud management with AI and security capabilities, campus fabric, licensing simplicity, and top-ranked service.
• Launched ExtremeCloud Universal zero trust network access, first to offer single policy engine for cloud-based NAC and ZTNA. Shipped enterprise-grade Wi-Fi 7 Access Points, with demand driven by high-density environments. Co-pilot AIOps solution had wins in various facilities.
• New commercial models: Extreme subscription private offer closed a transaction, and managed services platform had 32 MSP partners with doubled consumption billings.

First quarter revenue was $269.2 million, growing 5% sequentially. Product revenue was $162.3 million, up 6% sequentially, with stronger growth in data center and campus switching. Wireless revenue was consistent with prior quarters. Subscription and support revenue was $107 million, up 3% sequentially. Recurring revenue was 38% of first quarter revenue. Geographically, America's revenue grew double digits sequentially, APAC grew sequentially and year over year, while EMEA recovery is gradual with project delays due to macro trends like Germany and UK budget issues. Product backlog was within expected range, and 27 customers spent over $1 million on Extreme solutions this quarter.

• Q2 revenue expected to be in range of $273 million to $283 million, gross margin 63% to 64%, operating margin 11.3% to 13.4%, EPS $0.16 to $0.20.
• Full year 2025 revenue expected to be $1,117 million to $1,137 million, anticipating continued sequential growth, market share gains, revenue growth, margin improvement, and cash flow.

• Macro trends in EMEA causing project delays, such as Germany not having an official budget yet and coalition issues, and the U.K. new government putting together its budget, affecting public sector projects which are delayed.

Q: Can you lay out how the U.S. recovery is progressing and whether the recovery in Europe has started?

A: Ed Meyercord said U.S. is leading recovery, but Europe has macro trends causing project delays like Germany and U.K. budget issues. Kevin Rhodes added North America has strength with interest rate drops, but EMEA will start to come back in the second half.

Q: Talk to us about share gain versus competitors like Cisco, Juniper, HPE?

A: Ed Meyercord said share gain is from Cisco mainly, and with HP-Juniper deal closing, there will be opportunities. Discussed differences like end-to-end cloud capability, campus fabric technology, sub-second convergence, hyper-segmentation, and zero touch provisioning as key competitive advantages.

Q: Regarding robust demand in middle market and recovery in larger customer segment?

A: Ed Meyercord said anticipating return of larger projects based on funnel opportunities. Kevin Rhodes added North America has strength, EMEA will come back in second half.

Q: AI strategy?

A: Ed Meyercord said working on first-generation AI for AIOps, using AWS and Microsoft partners, and will bring generative AI into platform for different user experiences.

Q: Industry run rate and upgrade timing?

A: Ed Meyercord said networking and security convergence, customers moving forward despite budget constraints, and investments will flow into new platforms.

Q: Go-to-market motion changes and impact on bookings and pipeline?

A: Ed Meyercord said made changes in sales and marketing, with better alignment, specific selling motions, and targeting funnel creation in future quarters, seeing higher conversion rates.

Q: Detail on early closed projects and receivables?

A: Kevin Rhodes said a couple of deals closed earlier than expected, margin profile normal, receivables in normal range with good DSO, expecting to collect within 90 days.