Extreme Networks (EXTR) Q1 2027 Earnings Call Transcript

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DATE

Wed, Oct. 28, 2026

CALL PARTICIPANTS

• Senior Vice President of Finance and Corporate Development - Stanley Kovler
• President and Chief Executive Officer - Edward Meyercord
• Executive Vice President and Chief Financial Officer - Kevin Rhodes

TAKEAWAYS

• Revenue -- $341.1 million, representing 10% growth driven by strong customer demand and product execution.
• Non-GAAP EPS -- $0.33, increasing 50% year over year as top-line performance translated into accelerated earnings growth.
• SaaS ARR -- $264.7 million, growing 22% year over year due to the rapid adoption of Platform 1 subscriptions.
• Product Revenue -- $218.3 million, growing 12% year over year reflecting strength in wireless and wired switching products.
• Non-GAAP Gross Margin -- 62.6%, an increase of 130 basis points driven by the company's ability to offset component cost increases through pricing actions.
• Non-GAAP Operating Margin -- 17.4%, up 410 basis points due to operating leverage and cost management.
• Adjusted EBITDA -- $65.6 million, increasing 47% year over year.
• Free Cash Flow -- $38.6 million, generated through operations during the quarter.
• Cash and Cash Equivalents -- $244.5 million, the company's highest cash balance since fiscal 2021.
• Net Cash -- $44.5 million, calculated as total cash minus gross debt.
• Share Repurchases -- $25 million, consisting of 844,131 shares bought at an average price of $29.62 per share.
• Memory Inventory -- $36 million, reflecting strategic purchases to secure supply through calendar 2027.
• Large Customer Wins -- 44 deals exceeding $1 million, compared to 36 such deals in the prior year quarter.
• MSP Program -- 85 active managed service providers, an increase from 74 in the previous quarter.
• Consumption Billings -- growing 131% year over year, supported by Platform 1 contributions and managed service provider growth.
• Agent 1 Adoption -- reaching a rate 10 times higher than the first-generation AI platform within its first month of availability.
• Customer Support Tickets -- dropping by over 90% for a healthcare customer following the deployment of Campus Fabric technology.
• Agent 1 Diagnostics -- 58% of support cases arrived with complete troubleshooting data, allowing engineers to begin work immediately.
• Q2 FY27 Revenue Guidance -- $345.8 million to $350.8 million, reflecting seasonal expectations and continued demand.
• Full-Year FY27 Revenue Guidance -- $1.402 billion to $1.412 billion, representing 10% growth at the midpoint.
• Full-Year FY27 Non-GAAP EPS Guidance -- $1.35 to $1.39, updated to reflect confidence in sales funnel conversion.
• Non-GAAP Tax Rate -- 21.8% expected for the full fiscal year.

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RISKS

• Rhodes stated that "fiscal year 2027 is a transition year where legacy support contracts are subsumed into Platform 1 contracts the fastest," which creates a technical headwind for recurring revenue growth during the migration period.
• Meyercord stated that investors "will see the cost pressure in our gross margin number" due to the "higher cost of memory" embedded in product costs.

SUMMARY

Extreme Networks, Inc. (NASDAQ:EXTR) reported a 10% year-over-year increase in revenue, supported by product growth and the expansion of its cloud-based networking platform. Management indicated that the company is moving upmarket, noting an increase in large customer deals and the adoption of its AI-powered Platform 1. The company raised its full-year fiscal 2027 revenue growth guidance to 10% based on customer demand and a growing sales funnel. Strategic investments in memory components were highlighted as a means to maintain product availability amid industry-wide supply constraints.

• Management reported that the nudge feature in Agent 1 proactively provides contextual recommendations within the user workflow, achieving a 98% response rate for critical alerts.
• The company reported that Hard Rock Stadium selected Extreme to replace its existing wireless infrastructure with Wi-Fi 7 to support high-density events such as Formula 1 races and NFL games.
• CEO Meyercord stated, "Our components are secured through calendar 2027 while our competitors are quoting extended lead times," noting the competitive advantage of product availability.
• The company plans to launch Agent 1 operator mode in calendar 2027, which will execute tasks independently within defined governance boundaries to create autonomous AI.
• Management indicated that Platform 1 now accounts for over half of all subscription bookings, with expectations that 80% of customers will be on the platform by the end of next fiscal year.
• The company previewed Exchange Zones, expected in the first half of calendar 2027, which will allow customers to run enterprise AI on-premises to comply with data sovereignty requirements.
• Management reported that a large healthcare network reduced support tickets by over 90% within one month of deploying the company's Campus Fabric technology.

INDUSTRY GLOSSARY

• Agent 1: A context-aware, proactive AI management platform for networking that provides recommendations and automated troubleshooting.
• ARR: Annual Recurring Revenue, a metric used to measure the annualized value of subscription-based software arrangements.
• Campus Fabric: A networking technology that automates provisioning and improves security through network segmentation.
• MSP: Managed Service Provider, a company that remotely manages a customer's IT infrastructure and end-user systems.
• NAC: Network Access Control, a security solution that enforces policies on devices attempting to access a network.
• Platform 1: An AI-powered integrated networking platform that manages wired and wireless environments in a single interface.
• Wi-Fi 7: The latest generation of wireless technology designed to provide higher throughput and lower latency for high-density environments.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to Extreme Networks first quarter fiscal year 2027 financial results conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Stanley Kovler, senior vice president of finance and corporate development. Please go ahead.

Stanley Kovler: Thank you, Jade. Good morning, and welcome to Extreme Networks first quarter fiscal year 27 earnings conference call. I am Stanley Kovler, vice president of finance and corporate development. With me today are Extreme Networks president and CEO, Edward Meyercord. And executive vice president and CFO, Kevin Rhodes. We just distributed a press release and filed an 8-K detailing Extreme Networks financial results for the first quarter, a copy of the press release, which includes our GAAP to non GAAP reconciliations, and our earnings presentation is available in the IR section of extremenetworks.com.

Today's call and Q&A may include certain forward looking statements, based on current expectations about Extreme's future financial and operational results, growth expectations, new product introductions, supply chain dynamics, and management strategies. All financial disclosures made on this call will be on a non GAAP basis unless stated otherwise. We caution you not to put undue reliance on these forward looking statements as they involve risks and uncertainties that can cause actual results to differ materially from those anticipated by these statements. These risks are described in our risk factors in our 10-Ks and 10-Q filings.

Any forward looking statements made on this call reflect our analysis as of today, and we have no plans to update them except as required by law. Following our prepared remarks, we will take questions. And now I will turn the call over to Extreme's President and CEO, Edward Meyercord.

Edward Meyercord: Thank you, Stanley, and thank you all for joining us this morning. Revenue grew 10% year over year, marking Extreme's seventh consecutive quarter of double digit revenue and product revenue growth. Non GAAP EPS increased 50% year over year as we continue to translate strong top line performance into even faster earnings growth. SaaS ARR accelerated to 22% year over year growth and reached $265 million Based on the combination of our performance visibility into customer demand, strong funnel growth, continued share gains, and accelerating adoption of Extreme Platform 1, we are raising our expectations to 10% growth for both the second quarter and full year of fiscal 2027.

We expect our SaaS ARR growth to exceed 20% for the rest of the year as well. We continue to outgrow the market expand within larger enterprises, win competitive opportunities, and strengthen our position as customers increasingly standardize on our AI powered integrated networking platform. Customer demand remains strong. Our open funnel grew at a double-digit rate, with strength in all regions. Our regional pod strategy with a strong focus on specific verticals, is helping us win more of the opportunities we pursue. Our disciplined execution and supply chain strategy give us ample product availability to convert that demand into revenue. There are 3 key pillars driving our growth. First, we are moving upmarket.

We booked 44 customers at over $1 million this quarter, up from 36 a year ago. Largely due to our technology differentiation. Our campus fabric takes complexity out of the network with zero touch provisioning, subsecond recovery, and built in segmentation that helps prevent lateral attacks. Our Wi-Fi is built to perform in complex high density environments keeping users connected and applications running reliably. That differentiation, along with our simplicity, and lower total cost of ownership, is helping open new doors and win bigger deals. Second, Platform 1 adoption is accelerating as a result of continued innovation and now accounts for over half of our subscription bookings.

Customers want a single AI powered platform that integrates security and networking to help reduce complexity, simplify operations, and manage their wired and wireless environments in 1 place. Third, market conditions are working in our favor. Competitor refresh cycles, Wi-Fi upgrades, and the disruption from the-- the HPE-Juniper integration are creating a multiyear opportunity. Supply is also a differentiator Our components are secured through calendar 2027 while our competitors are quoting extended lead times. These advantages matter most when customers are making large high stakes decisions and our recent wins show it. 1 of the largest integrated health care networks in the United States chose Extreme for a campus transformation spanning 21 hospitals and roughly 600 care locations.

Where network availability directly affects patient care Campus Fabric delivered the automation, resiliency, and segmentation the customer needed. Within the first month, support tickets dropped over 90%. When customers evaluate fabric through a proof of concept, the differences become clear, and our win rate is excellent. Wi-Fi refreshes are another important driver of our success. Hard Rock Stadium in Miami selected Extreme to replace its aging Wi-Fi 5 environment with Wi-Fi 7 supported by a full switching upgrade.

In addition to Dolphins games, the network will support events like the Formula 1 Miami Grand Prix and the Miami Open, providing the capacity and lower latency required to support tens of thousands of fans simultaneously streaming, sharing content, making mobile transactions, and using digital services. This deployment demonstrates how these Wi-Fi refresh wins create an opportunity to then sell our entire infrastructure portfolio. Platform 1 is a key growth engine that strengthens our recurring revenue. Customers value the simplicity of managing their wired and wireless networks on a single AI powered platform.

We have a number of Platform 1 customers across verticals including Cambridgeshire and Peterborough NHS Trust Foundation in the U.K., where Platform 1 will manage the extreme wired and wireless network delivering enterprise security and operational resilience across the health care organization's clinical sites. Reggio IT, the largest municipal IT service provider, in North Rhine-Westphalia, Germany, will leverage Platform 1 to manage its extreme Wi-Fi 7 networks across hundreds of sites helping municipalities, schools, and utilities deliver digital services with less IT overhead. 1 of Austria's largest banks chose Extreme over a longtime competitor to refresh its wired and wireless networks across more than 70 branches all managed through Platform 1.

With its cloud first strategy, Platform 1 will give the bank's network team centralized cloud based management at scale. Last week, we held our second annual AI summit in Amsterdam bringing together senior IT leaders to discuss industry trends and share our longer term vision. We showcase early Agent 1 momentum and preview the industry's first on prem enterprise AI infrastructure for networking. Extreme's AI understands each customer's network topology, history, and operating context turning that insight into practical recommendations and measurable productivity. Agent 1 coworker our next generation AI agent, reached all Platform 1 customers in early September and drove a 10x adoption rate over the first generation. Its signature feature is nudge.

Unlike conversational AI, which waits for someone to ask the right question, the nudge feature proactively surfaces timely contextual recommendations inside the workflow and 98% of critical nudges got a response. 58% of cases opened through Agent 1 Coworker arrive with everything our engineers need to begin troubleshooting so work starts sooner. At Hill College in Texas, the CIO said his team solved the wireless outage in minutes with Agent 1 a task that would have taken a full morning. It also helped the team respond to advice on the guest network running crypto mining software by tracing the device through the access points, narrow its location, and resolve a security issue that could easily have gone unnoticed.

All within minutes. In calendar 2027, we will make Agent 1 operator mode available to customers, It will execute tasks independently within defined governance boundaries respond to events in real time, and run scheduled workflows, learning from each outcome to become more effective over time creating autonomous AI. We also previewed X-Gain Exchange Zones expected in the first half of calendar 2027. Exchange Zones bring enterprise AI on premise letting customers run the same applications locally, or in the cloud with full control over data residency. This will allow customers to comply with data sovereignty requirements, which have become increasingly important in international markets. Exchange Zones will also pool spare compute across their extreme access points and switches.

None of our direct competitors offer this. Our MSP program is also gaining traction closing the quarter with 85 active MSPs up from 74 last quarter. Consumption billings grew 21% quarter over quarter, and 131% year over year. Platform 1 is already contributing to that growth. Our funnel remains strong. We are expanding with larger customers. Industry disruption continues to create share gain opportunities. We have the supply availability to meet customer demand. And the differentiation of Platform 1 and Agent 1 are strengthening our recurring revenue growth and strategic relevance with customers. Now let me turn the call over to Kevin to discuss our financial results and guidance.

Kevin Rhodes: Thanks, Edward. I am pleased to report strong first quarter financial results. Starting with revenue, Total revenue of $341 million exceeded consensus and the high end of our guidance range. Representing 10% year over year growth. Product revenue of $218 million grew 12% year over year, indicating strength of customer demand above our typical seasonality. We are continuing to see growth in both wireless revenue especially with Wi-Fi 7-based products, and in wired switching as well. This marked our seventh consecutive quarter of double digit year over year growth and product revenue, demonstrating strong demand and our continued strong go to market execution. The industry pricing environment continues to be fluid. And we expect this dynamic to continue.

Based on a combination of product cycles mix, and demand as we pass through component cost increases. Recurring revenue of $119 million grew 7% year over year. Aided by SaaS ARR growth of 22%. As we previously stated, fiscal year 2027 is a transition year where legacy support contracts are subsumed into Platform 1 contracts the fastest. We expect a sharp reacceleration in recurring revenue growth in fiscal 28 coming off our balance sheet as SaaS deferred revenue ramps this year. Through the transition, we expect continued improvement in free cash flow and margins. Turning to the first quarter margins. Gross margin of 62.6% was up 130 basis points year over year. And above the midpoint of our guidance.

We are pleased that we were able to preserve our price advantage over our competitors. While passing on component cost increases. We have also solved for memory needs by executing on our supply chain strategy providing us with ample supply to meet demand and good visibility into gross margins. Earnings per share of $0.33 accelerated to 50% year over year growth, and above the high end of our guidance range. Geographically, we had strong revenue growth in The Americas and EMEA. In Asia Pac, while revenue fell due to elevated prior year comparisons, We continue to win large deals in the region and our funnel remains strong there. We continue to expect growth across all regions, in fiscal 2027.

Operating margin expanded to 17.4% in the quarter up 410 basis points from the prior year quarter. up 170 basis points sequentially and well above the high end of our guidance range. We also generated $66 million of adjusted EBITDA, up 47% year over year and our adjusted EBITDA margin of 19.2% was up 480 basis points year over year as well. If you look back 2 years ago, we have nearly doubled our profitability as a company. We continue to achieve operating leverage through healthy growth, as well as prudent cost management. Thus outperforming in the first quarter.

In the second quarter, while we plan for seasonally higher expenses, due to sales and marketing expense, such as our annual sales kickoff AI summit, and advisory council events, just to name a few, We continue to expect our profitability to maintain its current course. Over the long term, we continue to drive operating leverage as we scale. In terms of cash flow, we generated $399 million of free cash flow and ended the quarter with $245 million of cash. Our highest cash balance since fiscal 21. And a healthy $45 million of net cash. This was during a quarter in which we have repurchased $25 million worth of shares.

And made strategic memory purchases of which we now have $36 million of memory on our balance sheet. We are effectively generating cash and using it strategically. While returning cash to shareholders and maintaining a healthy balance sheet. On a vertical basis, we experienced broad based strength with particular standout bookings growth in education, manufacturing, health care, and sports and entertainment. We mentioned a few of these wins and these customers earlier. Looking at the second quarter and the rest of the year, we are increasingly confident in our ability to achieve double digit revenue growth.

In the second quarter of fiscal 27, we expect revenue to be in a range of $345.8 million to $350.8 million gross margin to be in a range of 62.2% to 62.7%, operating margin to be in a range of 16.4% to 17.4% and earnings per share to be in a range of $0.32 to $0.34 per share. For fiscal year 2027, we are increasing our guidance as follows. We expect revenue to be in a range of $1.402 billion to $1.412 billion up 10% year-over-year at the midpoint. Gross margin, we are expecting to be in a range of 62.3% to 62.8%.

Operating margin to be in a range of 17.2% to 17.6%, and earnings per share to be in a range of a $1.35 to $1.39 per share. We expect our fiscal 27 non GAAP tax rate to be 21.8% for the year. And with that, let's now turn the call over to the operator to begin the question and answer session.

Operator: Thank you. We will now begin the question and answer session. Please limit yourself to 1 question. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question. To allow for optimum sound quality. And if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ryan Koontz from Needham and Co. Please go ahead.

Ryan Koontz: Great. Good morning. And nice results in guys. Nice to hear the hear the business is humming here. With regards to gross margin and supply and memory specifically, any particular things you would point out with regards to, availability in terms of your strategy, how it is playing out, and how we should expect, gross margins to fare going forward. it is nice you guys have supply, but, I think we have all been investors have been worried about cost here. So maybe you can shed some more light on that. Nice job, though.

Edward Meyercord: Yeah. Thanks, Ryan. And yeah, our teams got on this early, and what we have tried to do is flip know, what is a negative in terms of constrained supply into a positive because we have plenty of memory. You will see the cost pressure in our gross margin number because you will see the higher cost of memory embedded what we just announced. The bottom line is that we are. We have got full supply out well into fiscal 28. And for us, what we see is an opportunity to provide shorter lead times than what is out there for the industry. So, yeah, we continue to remain in a strong position on that.

And the higher cost of memory is built into the gross margin that we just reported and our guide. Got it. And the pricing environment allows you to essentially raise price to offset that? that is right. We have been a little more conservative than our larger competitors in raising price. We hear this from distributors, partners, and customers that the bigger players have been raising price more aggressively. So I would say we still have room there. But we have been able to deliver the margins with what we have done so far. that is really great, Edward. Thank you. I will get back in the queue. Appreciate it. Thanks, Ryan.

Operator: Your next question comes from the line of Michael Genovese from Rosenblatt Securities. Please go ahead.

Michael Genovese: Great. Thanks. So Platform 1 bookings are over 50% of subscriptions. Up 5x from last year. Can you just-- what are you saying now? You might have said on the call, but if you could repeat it about where you are going to be at the end of fiscal 27 and how much is new logos versus conversion of existing customers?

Edward Meyercord: Yeah and I. Let me cover the first part, I will let you jump in on the new logo number if we are sharing that. But, Mike, by the end of this year, we expect half of our customers to be on the platform. it is the fastest move and migration that we have ever seen. We have-- at the end of this past year, we had 10% of our customers on the platform, and we would expect that number to grow to over 50% of our customers on Platform 1 at the end of this fiscal year. And then and then that number growing to approximately 80% the following year. So the adoption has been very high.

Our teams commercially have done a great job positioning and selling Platform 1. I think you can see demand for the most modern industry tools. And also the differentiation that we bring. It does from a new logo perspective, the market is interested in how to leverage AI how to leverage your modern networking tools, the most modern networking tools, as they consider investments into the future. So it is it is giving Extreme more at-bats and more opportunities. Kevin, I do not know if we are sharing exact percentages in terms of new logo, but yeah, I would expect new logo adoption to be closer to 100%.

Kevin Rhodes: I would agree. that is what I was going to say, when we are when we are going to market right now, Mike, we are going to market with Platform 1. And that is all new logo activity. that is where we are, you know, kind of center-staging, focusing that technology, for that new logo. And then, of course, you have got the, the movement of the migration of all the customers into Platform 1 as well. And that happens more episodically as they come up for renewal. But we are seeing, tremendous success in existing customers moving over into platform. And it is not a big lift for them to move from XiQ into Platform 1.

We saw even 1 customer hospital system do it in 40-some-odd minutes. So you get the benefit of the AI. And you get the benefit of all the new technology that we are building there, And so people are eager to go and move. So we do not have percentages there that we are sharing. But I would say it is really strong across the board.

Michael Genovese: Great. Great. And then just for my follow-up, on the. Just the monetization of Agent 1 Coworker and then also exchange zones, is this monetized through the subscription, through utilization? Does it pull through hardware? Like, how do we think about monetizing these things?

Edward Meyercord: Sure and they are different. So we came out with coworker in September, which was our second-generation AI platform, if you will, And that is where we made the move from what we would call conversational-based AI, which is where the industry is. Simply put, you have to prompt AI in order to get an answer. So it is sort of-- it is almost chatbot-ish. People are having to converse if they want to use AI. In this case, coworker is conversational. it is included in the subscription. So all of our customers have it, and that is what we are excited about.

And we mentioned 10x the usage because it is it is always on. it is context aware of your network. it is always on. it is ambient. it is it is proactive. And it is watching what you are doing. And if it feels that it can support you or if it can highlight let's say, a network issue, or a solution or suggest a workflow, etcetera, it is going to do that. And so that is that nudge we are talking about. So now that is built into the platform.

And what we are seeing is the customer adoption engagement with our platform, which is-- we are already on our second-- is far greater than what we have with what was our old AI expert. You know, when we move into operator mode, which does contain the governance, element, of our agents So that element of operators already out there. But, we are introducing new features and new capabilities like what we said in terms of localization of data as it relates to data sovereignty. Some people wanting to keep workloads in the enterprise on campus without going out to the cloud.

Survivability, from a security standpoint, you do not want to get disconnected from the cloud and you want to hold you know, the workloads local. that is what is coming out in operator mode. And the big change for Extreme from a revenue perspective will be in token economics for Extreme. We are calling tokens agent actions, and these agent actions will bring in a new stream of revenue for Extreme and this is where we are talking about unlocking data in the network for other use cases outside of traditional network management.

So the idea that we can work with stadium customers and enhancing the fan experience or the patient experience or supporting caregivers in a healthcare environment or retail outcomes from a supply chain standpoint or from a consumer standpoint. The list goes on and on, and there is a lot of different ways you think about the network being literally in the middle of everything network being strategic, and all the data in the network. This is where we are excited in the second half. Of calendar 2027 I am sorry. The first half of calendar 2027, the second half of our fiscal year to bring operator mode to bear for customers.

And we are already working with what we are calling our foundry customers on applications and ways to leverage data from the network in this new platform.

Operator: As a reminder, if you would like to ask a question, please press Your next question comes from the line of Eric Martinuzzi from Lake Street Capital Markets. Please go ahead.

Eric Martinuzzi: Yes. You commented on your 3 key pillars to the growth story. I wanted to focus in on the upmarket move. I think when you exited FY 2026, you guys were talking about the million dollar plus opportunities in the funnel up by mid teens kind of year over year. Where does that stand today? Obviously, you had good success in Q1, but where are we with the 9 months to go in the fiscal year?

Edward Meyercord: Eric, it is it is it is actually up a bit. So I think you would see that you that number would be up over 20% depending on the period that you are looking at because our funnel, we slice it, and we are looking at it by quarter for the next. You know, for the for the rest of the fiscal year. So we see these opportunities continuing to grow, and that percentage in the funnel growing beyond the mid teens number that we discussed.

Eric Martinuzzi: Terrific. And then I am always curious about competitive displacements, but this Austrian bank win-back that you described first of all, sort of why did they leave? And then second of all, why did they come back?

Edward Meyercord: Yeah. Well, 1 of the-- I mean, in that case, this was a win against 1 of the largest players in the industry, I should mention. So it was less about them leaving. It was more about them coming to extreme We talk about Cisco fatigue in the marketplace. And, you know, that ebbs and flows. When we look at our solution set, we are bringing simplicity and we are we are bringing a focus on end to end networking solutions all in 1 platform with a highly differentiated fabric technology for campus, and a very competitive wireless solution.

So I think when all this gets packaged up, you know, we wind up being, I think, more compelling from a technology perspective and I think from a commercial perspective, lot more attractive as people evaluate total cost of ownership. We have some large wins We have had, in virtually all of our geos, where we are getting in the door, with some very large opportunities, and we are having success converting those. We mentioned that $10 million win with a very significant health care company in the U.S. this past quarter. That is essentially a new logo win for Extreme and a displacement of a large competitor.

And again, it is that Fabric technology that people like. it is the combination of our Wi-Fi and our ability to support highly complex environments And then it is putting it all together end-to-end, wired, and wireless. The whole portfolio is in a platform. Our competitors have software that sits on top of other software so they still keep the distinct user interfaces of all those software platforms running, and, really, you are just left with an over the top software. We actually have a legitimate platform where there is 1 interface for all the technology and having everything in 1 place and then having these new AI tools is very compelling for customers. Got it.

Congrats on the quarter and outlook. Thanks, Eric.

Operator: Your next question comes from the line of Tomer Zilberman from Bank of America. Please go ahead.

Tomer Zilberman: Hey, guys. Can you hear me?

Edward Meyercord: We can. Yeah. We got you, Tomer.

Tomer Zilberman: Great. 2 questions for you guys. Maybe to start off with the guidance raise. You went from an 8% guide previously. Now you are, you know, going back to 10%, which is more in line with your long term framework that you set out for us last year. I just want to ask effectively, what changed? Is it a quicker transition through the subscription to the Platform 1 that you previously said that would be a transition year this year? Is it better demand on the product front? Is it kind of a byproduct of maybe pricing increases given the supply constraints we are seeing? Where is the additional growth coming from?

Edward Meyercord: Tomer, you hit the nail on the head. it is both. So, you know, we are we are ahead of plan in terms of the recurring revenue side in terms of the adoption of Platform 1, which has been the big the big driver of growth. You know, we look at the year over year comparison of being at, you know, in the, call it, it, low single digits a year ago into the mid twenties a year later. In terms of adoption of Platform 1 subscription. So that has been driving a higher recurring revenue number than maybe we had earlier. And so we have the confidence we see that continuing going forward.

The other is, 12% product growth and that is driven by the opportunities we have in the funnel. Eric asked about these larger opportunities in terms of these million dollar plus opportunities and what does that growth look like? it is a very healthy outlook in terms of the funnel of opportunities we have. If you recall, we now have 20 different pods. We are forecasting and driving growth for each 1 of those in terms of funnel creation. And we are carefully evaluating how we are converting on these funnels.

And so we are extremely tactical in how we are managing this and have visibility So from the bottoms up, the call is coming from confidence from the pod level of the funnel creation and funnel conversion and our confidence in delivering the higher number.

Tomer Zilberman: Got it. Maybe as a follow-up then, you know, talking about the pipeline opportunity, I just want to understand where are we in this competitive displacement cycle? Meaning, we have talked for some time now about the opportunity to displace the top 2 incumbents, 1, Cisco, because of channel disruption, and 2, general age, Juniper and HPE and their integration challenges. Do you see the same level of displacement opportunity that you may have seen a year ago? Or are these companies-- is the integration between the 2 tightening and getting better and, you know, maybe channel disruption is not as big of an opportunity as it was, say, a couple of quarters ago.

Edward Meyercord: Yeah. I think the opportunity is, is as good as it is been. We are seeing as it relates to. I will just hit HPE-Juniper first. You know, people may have seen their ads about self driving network, and their ad is very far away from the truth of what they are actually delivering to customers. And that is not lost on customers. And there is a discrepancy between wired and wireless in-cloud and non-cloud, and Mist is. Had a very strong competitive position, and they have fallen back. And then there is a question about how the Aruba portfolio and how that will even fit. They have said those 2 product portfolios will not come together.

So you are an enterprise customer making a long term decision, it introduces a fair amount of risk depending on where your technology sits today. Cisco's focused on a lot of other things besides networking. And they are the most aggressive in raising price. And so if you are looking for the most complicated bundle of solutions, and the most expensive, it is Cisco. And a lot of customers do not want to have everything together. They will look and say, I would like the best in breed, Cisco, compared to, let's say, Extreme and Palo Alto there is much better value and capability going with the you know, the extreme Palo Alto solution and having best of breed.

As opposed to paying a lot more and having a lesser solution from this larger entity. So it just-- they create disruption and share opportunities. that is at the customer level. But also within the channel and at the channel level. And Cisco is. They are asking customers right now. They are meeting in Vancouver. They are asking their channel partners to do a lot more and try to sell the entire portfolio and that is not necessarily what people want in the networking world. Where buying cycles are different. Buyers are different, and there is not necessarily this synergistic fit between what they are trying to mash together.

So that creates some frustration, and it creates opportunities for us where people view their ability to make more money from the channel where they can make more money with Extreme and the network instead. Got it. Thank you.

Operator: Your next question comes from the line of Dave Kang from B. Riley. Please go ahead.

Dave Kang: Thank you. Good morning. My first question is regarding Q1. I am just wondering if any revenue was left on the table And my follow-up is on gross margin. Just wondering if your long term target is still mid-30s which is about, what, 200 bps away. Just wondering what the catalyst will be to get to that mid-30s?

Edward Meyercord: Yeah. Dave, I will take it, you know, at a high level. Starting with the question about, you know, supply chain We do not feel our numbers are constrained. So I would say we and going forward, we continue to market this with our distributors and with channel partners to make sure the word is out that Extreme has supply. There is-- every quarter, there is always some level of product constraint that might happen at the end of the quarter where maybe products do not ship out. So but it. it is at normal levels for us, not at unusual levels.

In terms of the of the gross margin, we see a step function in our recurring revenue and our recurring revenue margins will contribute As you know, we are putting together service and subscription in the Platform 1 bundle. And that creates some technical issues and that is a. it is a technical drag on revenue in the years of heavy migration. That we are in right now. And that recurring revenue growth rate that we called in the mid to now? You know, higher single digit range, we will step into the teens, and we will step into the 20% range overall for recurring revenue. And given the margins of recurring revenue, that will be a big driver.

Kevin, do you wanna comment maybe with a little more granularity?

Kevin Rhodes: I think you are right there, Edward. You know, that. that is what we are expecting is we are expecting this acceleration, especially in SaaS deferred revenues as we sell more and more Platform 1 subscriptions. You know, you will get the Rule of 78 benefit. Where you see more revenue coming in contributing next year of what we sell this year and the same with the year after. And so you are gonna see more higher value, higher contribution revenue come into the model. Over the next couple years, and that is gonna lift us. The other concept here, Edward, is that we do expect some of these memory costs and other component costs to come down over time.

But we are in an environment where, you know, prices have never gone backwards. And so we should be able to see some improvement in product margins over time as well. A, from a scale perspective, but also just component costs reductions over time to where we maintain, you know, our pricing. So I think we have got a couple of levers here to drive improved gross margins over time on that on that front? Thank you.

Edward Meyercord: Thanks, Tim.

Operator: At this time, there are no further questions. I would now like to turn the call back to Edward Meyercord, CEO, for closing remarks.

Edward Meyercord: Okay. Well, thank you all for joining us this morning. It was a strong quarter. And, yeah, as we are calling, we see the continued momentum in the business. We have just a shout out to our employees who are listening in. We appreciate all of the hard work. And all of the effort to deliver on the outcomes. Thanks, everybody, and have a great day.

Operator: This concludes today's call. Thank you all for attending. You may now disconnect.

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