Extreme Networks(US:EXTR)2021-01-28 05:02Financial Data and Key Metrics Changes - The company reported preliminary Q2 results with revenue expectations between $238 million to $248 million, exceeding prior guidance of $235 million to $245 million [29] - Non-GAAP earnings per share outlook improved to $0.11 to $0.17 from a previous range of $0.09 to $0.12 [29] - Gross margin expectations for Q3 are between 58.4% to 59.5% for GAAP and 61.5% to 62.5% for non-GAAP, indicating a sequential improvement [37] Business Line Data and Key Metrics Changes - New cloud subscription bookings grew 140% year-over-year and 40% sequentially, reaching over $80 million in annualized run rates [30] - Wireless unit shipments saw a 14% quarter-over-quarter growth, marking a return to sequential growth [23] - The company experienced strong demand for new wired products, particularly the 5520 universal platform, contributing to higher gross margins [24] Market Data and Key Metrics Changes - The Americas region grew 2% year-over-year in bookings, while international business bookings increased by 3% year-over-year [31] - Six out of eight major verticals showed quarter-over-quarter growth, with notable demand in government and education sectors [32] - The company anticipates a recovery in the sports and entertainment verticals in the second half of fiscal '21 [32] Company Strategy and Development Direction - The company is focusing on cloud-driven networking solutions to support digital transformation, emphasizing the importance of data insights for business optimization [10][12] - A strategic shift towards a channel-driven growth model has been implemented, enhancing customer focus and opportunity management [17] - The company is investing in innovation and customer experience to drive future growth, particularly in the context of 5G opportunities [22][25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued growth, expecting double-digit year-over-year revenue growth and record gross margins in the second half of fiscal '21 [27] - The ongoing digital transformation and the shift to distributed networks are seen as long-term trends that will benefit the company [10][11] - Management noted that the company is gaining market share and becoming more competitive in the cloud-based networking space [50] Other Important Information - The company paid down $40 million in debt, reducing its net debt balance to $172.3 million [35] - Deferred revenue reached $309.1 million, up 4% sequentially, which is expected to sustain recurring revenue growth [30] - The company is addressing potential adjustments to its financial statements related to its distributor rebate program [28] Q&A Session Summary Question: What are the primary drivers of the improving gross margin? - The improving gross margin is primarily driven by product gross margin, a positive shift in product mix, and a sequential drop in freight and tariff costs [39] Question: Is there any risk of gross margins backsliding below the 60% level? - Management does not foresee any risk of backsliding and expects gross margins to continue improving [40] Question: How much of the strength in government and education is tied to E-Rate? - Government and education were the strongest verticals, with a healthy demand observed [45] Question: Can you clarify the 5G opportunity? - The 5G opportunity is expected to be substantial, with potential annual revenue opportunities in the range of $50 million to $100 million [53][60] Question: What is the deadline for getting the December quarter financials finalized? - The deadline for filing is February 9, and the company expects to complete its reviews on time [88] Question: Are there any component issues in the supply chain? - The company has not faced significant supply chain constraints due to strong relationships with suppliers, although lead times for certain products have increased [100]