Core Insights - Extreme Networks reported its seventh consecutive quarter of revenue growth, driven by demand for its AI-powered networking platform and competitive wins [4] - The company raised its full-year revenue guidance, expecting profit growth to outpace revenue growth for fiscal 2026 [4][19] Financial Performance - For Q2, Extreme reported revenue of $318 million, a 14% increase year over year, and non-GAAP EPS of $0.26, up 24% from the prior year [3][6] - Non-GAAP gross margin was 62%, up 70 basis points sequentially, with an operating margin of 16%, an increase from 13.3% in the previous quarter [2][4] - Adjusted EBITDA was $52.4 million, representing a 16.5% margin [2] Recurring Revenue and SaaS Growth - Subscription and support revenue reached $120 million, up 12% year over year, while SaaS annual recurring revenue (ARR) grew 25% year over year to $227 million [1][6] - SaaS deferred revenue rose to $334 million, a 15% increase year over year, contributing to overall deferred recurring revenue of $628 million, up 9% year over year [1] Competitive Positioning and Market Strategy - The company achieved 34 deals over $1 million, indicating strong competitive wins across various verticals [7][10] - CEO emphasized the unique capabilities of Extreme Platform One, which features an "agentic AI core" for autonomous issue diagnosis and resolution [8] Customer and Partner Developments - Extreme's managed service provider partners nearly doubled, with billings increasing more than three times year over year [11] - The company launched the Extreme Partner First program to enhance deal registration and improve partner experience [11] Supply Chain and Pricing Strategy - Extreme implemented a 7% price increase, which management described as a "non-issue" for customer reactions, indicating low demand elasticity for critical networking solutions [13] - The company is qualifying alternative components to ensure supply chain resiliency and has the flexibility to increase prices if component costs rise [14] Guidance and Future Outlook - For Q3 fiscal 2026, revenue guidance is set between $309 million and $314 million, with gross margin expectations of 61% to 61.4% [17] - Full-year fiscal 2026 revenue guidance was raised to a range of $1.262 billion to $1.270 billion, implying approximately 11% year-over-year growth [18]

Financial Data and Key Metrics Changes - Total revenue for Q2 2026 was $318 million, representing a 14% year-over-year increase and exceeding guidance [14] - Earnings per share (EPS) rose to $0.26, a 24% improvement from $0.21 in the prior year quarter [14] - Non-GAAP gross margin increased to 62%, up 70 basis points from the previous quarter [16] - Adjusted EBITDA was $52.4 million, with an adjusted EBITDA margin of 16.5% [19] Business Line Data and Key Metrics Changes - Product revenue increased double digits year-over-year for the fourth consecutive quarter [4] - SaaS ARR grew by 25% year-over-year, reaching $227 million [4] - Subscription and support revenue reached $120 million, up 12% year-over-year [15] Market Data and Key Metrics Changes - The company experienced strong revenue growth across all regions, indicating robust demand for critical IT infrastructure [15] - The company closed 34 deals over $1 million, showcasing its ability to win large enterprise projects [5] - The company noted strong momentum in the EMEA region, with record sales attributed to regulatory requirements around data sovereignty [52] Company Strategy and Development Direction - The company aims to accelerate its leadership position in the market, driven by innovation and competitive differentiation [7] - The introduction of the Extreme Partner First program aims to enhance partner profitability and streamline deal registration [9] - The company is focused on moving upmarket and winning larger enterprise networking projects, leveraging its unique technology [5] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment, citing low elasticity of demand for networking infrastructure [11] - The company anticipates continued growth in profit faster than revenue, with expected profitability growth of around 20% [12] - Management highlighted the importance of AI in customer conversations and the company's unique agentic AI platform as a competitive advantage [30] Other Important Information - The company is actively managing supply chain challenges and has implemented a replacement strategy for components [11] - The company expects to see a significant multi-year growth opportunity due to competitive displacements in the market [10] Q&A Session Summary Question: Evidence of share gain and impact of restructuring - Management uses third-party analysts to track share gains and has confidence in their booking outlook due to recent restructuring efforts [24][26] Question: Importance of AI in offerings - AI is a top priority for customers, and the company believes its agentic AI platform provides a competitive edge [30][32] Question: Competitive displacements and project scope - Projects vary in scope, with some starting in one area and expanding to others, leveraging unique solutions like data sovereignty [36][38] Question: Customer reaction to price increases - Customers have shown resilience to price increases, and the company plans to evaluate further price adjustments as needed [42][44] Question: Impact of professional services on margins - Professional services have lower margins compared to subscription services, affecting overall margin mix in the short term [75][78] Question: Long-term growth expectations - Management is optimistic about continued double-digit growth in 2027, driven by market share gains and improved solutions [66][70]

Summary of Extreme Networks (EXTR) FY Conference Call - May 09, 2025 Company Overview - **Company**: Extreme Networks (EXTR) - **Industry**: Networking technology Key Financial Performance - **Quarterly Performance**: Achieved sequential revenue growth, bucking typical seasonal trends, with strong bookings performance, the best in the last six quarters [4][5] - **Cash Flow**: Strong operational cash flow of $30 million, with a healthy non-GAAP earnings of $0.21 per share [6] - **Fourth Quarter Guidance**: Projecting to reach $300 million in revenue at the midpoint of guidance, indicating improved scale and bookings [7] Geographic and Segment Performance - **Government Sector**: Strong performance in government spending, particularly in Europe and Asia Pacific, with limited exposure to federal risks in the U.S. [10][11] - **Europe**: Notable recovery in spending, with expectations for sustained growth due to increased military investments amid geopolitical tensions [14][15][16] - **Education Sector**: E-Rate program remains unaffected by federal spending cuts, with strong bookings driven by the uncertainty surrounding competitors [25][26][27] Competitive Landscape - **Tariff Management**: Implementing various mitigation strategies to manage potential tariff impacts, with limited exposure of approximately $1.5 million expected in the fourth quarter [20][21] - **Competitor Pricing**: Awareness of potential price increases from competitors like Juniper and Cisco, with a readiness to adjust pricing accordingly [23][24] - **Market Dynamics**: Favorable competitive environment due to challenges faced by larger competitors like HP and Juniper, and Cisco's struggles with integration and licensing complexity [71][76][82] Product and Technology Developments - **Platform One**: Introduction of a unified platform that integrates AI, security, and cloud management, enhancing customer experience and operational efficiency [90][91][110] - **AI Integration**: Focus on bringing advanced AI capabilities to networking, differentiating from competitors by offering automation and improved network management [66][68] - **Channel Strategy**: Strengthening relationships with channel partners and expanding managed service provider (MSP) offerings, with a goal to increase the number of MSPs to 75 by year-end [35][92] Future Outlook - **Gross Margin Targets**: Aiming for gross margins of 64-66%, with improvements expected from a shift towards subscription and recurring revenue models [99][100] - **Inventory Management**: Plans to normalize inventory levels to around $80 million over the next few quarters, with a focus on balancing raw materials and finished goods [55][57] - **Market Share Growth**: Anticipating growth in subscription revenue through bundled offerings and private offers for large customers [93][94] Conclusion - **Investor Message**: The company is on track for consistent growth, with excitement surrounding the launch of Platform One and its potential to differentiate Extreme Networks in the competitive landscape [114][115]