Extreme Networks(EXTR) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q4 2023 was $363.9 million, representing a 31% year-over-year growth and a 9% quarter-over-quarter increase, exceeding expectations [26][47] - Full year revenue for fiscal 2023 reached $1.3 billion, growing 18% from the prior year, with product revenue growth of 22% [49] - Earnings per share (EPS) for Q4 was $0.33, and for the full year, non-GAAP EPS was $1.09, reflecting a 42% year-over-year increase [26][76] - Gross margin for Q4 was 60.2%, up 110 basis points sequentially and 320 basis points year-over-year, attributed to improved product gross margin and supply chain costs [48][50] Business Line Data and Key Metrics Changes - Product revenue for Q4 was $261.7 million, growing 40% year-over-year, with strong double-digit growth in campus switching and wireless LAN, partially offset by a decline in data center revenue [47][49] - SaaS Annual Recurring Revenue (ARR) grew 25% year-over-year to $129 million, up from $103 million in the same quarter last year [47] - Total services and subscription revenue was $102.2 million, up 12% year-over-year, driven by cloud subscription revenue growth of 27% [73] Market Data and Key Metrics Changes - The U.S. market showed strong performance in Q4, while Germany and the APAC region experienced some weakness [28][90] - The company expects revenue growth to remain strong in fiscal 2024, starting with mid-teens growth in Q1 [28] Company Strategy and Development Direction - The company is focusing on managed services as a new growth vector, aiming to simplify commercial terms and operations for customers [16][17] - The introduction of a disruptive managed services platform is expected to expand the go-to-market footprint and create new growth opportunities [33][116] - The company is also investing in federal opportunities and enhancing its cloud and security offerings to capture market share [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued growth, expecting orders to improve year-over-year throughout 2024 [12][13] - The company is optimistic about the enterprise networking spending environment and anticipates strong demand driven by improved supply chain conditions [52][99] - Management highlighted the importance of market share gains and the potential for significant revenue growth from existing and new customers [39][96] Other Important Information - The company ended the fiscal year with a net cash position of $10 million after repurchasing $25 million of shares and paying down $80 million in debt [51][77] - The backlog is expected to normalize throughout 2024 and into Q1 of 2025, with a healthy level of end customer orders [12][45] Q&A Session Summary Question: Can you provide an update on the backlog? - Management indicated that they will move away from providing specific backlog numbers but expect normalization throughout 2024 and into Q1 2025, with 90% of the backlog being end customer orders [12] Question: What are the expectations for orders turning positive year-over-year? - Management expects orders to continue growing throughout 2024, with each quarter showing improvement [13] Question: What is the outlook for revenue growth in 2024? - Management reiterated expectations for mid-teens revenue growth for the full year [57] Question: How is the company addressing competitive pressures? - Management noted that Juniper is a key competitor, but the company differentiates itself through its unique fabric and cloud solutions [102][103] Question: What is the strategy for AI capabilities? - The company is focused on providing actionable insights through its AIOps tools, which are integral to its offerings [120]