EXTREME NETWORKS INC Q2 FY2025 earnings call

• The networking market showed a broad-based recovery, with Extreme achieving the best product bookings in five quarters and improved competitive win rates, especially with larger enterprise customers.
• EMEA business grew significantly sequentially and year-over-year, while Americas continued strong execution though impacted by K-12 seasonality. APAC also saw sequential growth.
• Extreme's cloud networking platform is well-received for its simplicity and feature differentiation, with the enterprise campus fabric a key driver in winning new deals due to zero touch provisioning, resilience, and cyber attack mitigation.
• Secured notable customer wins like the Pittsburgh Steelers and Taylor Wessing, with MSP pilot program bookings doubling quarter-over-quarter and 37 MSP partners.
• Launched Extreme Platform ONE in December, an innovative technology platform integrating networking and security solutions with AI models for automation, named one of the 10 hottest networking products by CRN Magazine.

Second quarter revenue was $279.4 million, growing 4% sequentially. Product revenues grew 6%, while Professional Services were slightly down year-over-year. Geographically, EMEA business grew both sequentially and year-over-year due to share gains and enterprise vertical diversification. Americas revenue declined sequentially due to K-12 seasonality, but is expected to recover in the third quarter. APAC region grew 5% sequentially. Subscription and support revenue was $107.1 million, consistent with the first quarter. Recurring revenue made up 37% of total revenue, driven by cloud subscription revenue. Subscription deferred revenue was up 18% year-over-year to $290 million, and total deferred revenue was $589 million, up 7.5% year-over-year.

• For the third quarter, revenue is expected to be in the range of $276 million to $284 million, gross margin 62%-63%, operating margin 12%-13.7%, and EPS $0.16-$0.20.
• Full-year fiscal 2025 revenue is expected to be in the range of $1,120 million to $1,138 million. Cash generation and profitability improvements allow restarting offsetting dilution from stock-based compensation.
• Subscription and support revenue expected to grow sequentially in the second half of the year.

• Delays in the HP-Juniper merger could create risk around the transaction, potentially benefiting Extreme in the long term.
• Negative impact from a lack of government in Germany affecting EMEA business, with pent-up demand expected to release once the government situation stabilizes.
• Currency fluctuations, though Extreme hedges to offset minor adjustments, with no reporting on a FX-adjusted basis.

Q: Ryan Koontz asked about U.S. K-12 seasonality, EMEA verticals, FX hedging, and HP-Juniper merger.

A: Ed Meyercord and Kevin Rhodes responded, noting K-12 seasonality related to E-rate and building cycles, EMEA growth with share gains but German government delays impacting business, FX hedging to offset minor fluctuations, and that delays in HP-Juniper deal could benefit Extreme.

Q: Christian Schwab asked about Wi-Fi 7 impact.

A: Ed Meyercord said Wi-Fi 7 is ramping with strong adoption expected, as Extreme was early to market, and Kevin Rhodes added Gartner's projection of nearly half of APs sold in 2027 being Wi-Fi 7.

Q: Timothy Horan asked about Platform ONE differentiation, impact on margins, etc.

A: Ed Meyercord explained Platform ONE unifies applications into a single interface with AI, enabling visibility, management, and orchestration, with incremental revenue expected from combined offering.

Q: Dave Kang asked about opportunities with service providers like Verizon.

A: Ed Meyercord discussed targeted opportunities with Verizon and Ericsson, leveraging new commercial models and MSP platform for private subscription offers.

Q: David Belk asked about federal funding impact, subscription business, and Q3 seasonality.

A: Ed Meyercord and Kevin Rhodes responded on federal funding not significantly impacting current projects, subscription business drivers including product growth, Platform ONE, private offers, and MSPs, and Q3 seasonality due to broader market recovery and expected flat March quarter.

Q: Eric Martinuzzi asked about industry growth rate and gross margin outlook.

A: Ed Meyercord and Kevin Rhodes stated industry is mid-single digit growth with Extreme in share gain position, and gross margin outlook for Q3 is 62%-63% due to product mix and FICA set limits, with long-term target of 64%-66%.