Extreme Networks(EXTR) - 2021 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q4 total revenue reached $278.1 million, growing 29% year-over-year and 10% quarter-over-quarter [26] - Non-GAAP earnings per share (EPS) for Q4 was $0.19, up from $0.03 in the year-ago quarter and $0.16 last quarter [28] - For fiscal 2021, non-GAAP EPS grew to $0.57, up from $0.12 in fiscal 2020 [29] - Non-GAAP gross margin for Q4 was 60.5%, improving 110 basis points year-over-year but declining from 61.5% in Q3 [34] Business Line Data and Key Metrics Changes - Product revenue for Q4 was $195.8 million, with a book-to-bill ratio of 1.18; wired revenue grew 55% year-over-year while wireless revenue grew only 1% year-over-year due to supply constraints [30] - Total services revenue reached a record $82.3 million, up 11% year-over-year, driven by cloud subscriptions [31] - New cloud subscription bookings grew 111% year-over-year, with total cloud managed subscription business exceeding $100 million in annualized bookings [27] Market Data and Key Metrics Changes - Extreme Networks remains the second largest in cloud networking with an 11% market share, experiencing triple-digit growth in new subscriptions bookings for four consecutive quarters [11] - The highest sequential growth came from the education sector, with notable strength in service provider, manufacturing, and government sectors [33] Company Strategy and Development Direction - The company aims to capitalize on the shift towards cloud-driven enterprise networking and 5G network infrastructure services, with a focus on enhancing SaaS customer success [22][24] - Investments are being made in talent and new programs to drive SaaS growth, alongside a migration to Universal Hardware for improved margins [15][54] - The company anticipates significant growth in fiscal 2022, with revenue expected towards the high end of the 5% to 9% long-term growth target [45] Management's Comments on Operating Environment and Future Outlook - Management noted unprecedented demand for solutions and a strong competitive position, with a record backlog entering fiscal 2022 [8][25] - The company expects to see easing supply chain pressures starting in Q2, which should positively impact gross margins [60][61] - Management expressed confidence in the growth trajectory, driven by cloud solutions and a strong pipeline of opportunities [62] Other Important Information - The company ended Q4 with $247 million in cash and equivalents, and net debt decreased to just under $100 million [41] - The cash conversion cycle reached historically low levels of 22 days, driven by a substantial decrease in inventory [40] Q&A Session Summary Question: Demand environment and IT priorities - Management highlighted a shift towards flexible and hybrid work environments, increasing the importance of cloud-enabled networking solutions [49][50] Question: Pricing strategy and competitor actions - Management acknowledged awareness of competitor price increases and indicated potential for tactical price increases on certain products [53][54] Question: Supply chain challenges and gross margin outlook - Management confirmed that Q1 would experience the most pressure on gross margins, with expectations for improvement in Q2 [58][60] Question: Fiscal 2022 outlook and growth assumptions - Management indicated strong visibility into demand and a robust funnel of opportunities, particularly in cloud and 5G segments [62] Question: Customer cancellations and backlog management - Management stated that customer cancellations are rare, with high demand leading to effective backlog management [76][80]