EXTR - Earnings call transcript Q1 2018

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Operator

Good day, ladies and gentlemen, and welcome to the Extreme Networks' Q1 Fiscal Year 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions].

As a reminder, this call is being recorded. to Relations. host like Brandi today’s now Investor Piacente, would introduce for your conference, I

begin. may You

Brandi Piacente

review on Thank call. you, to goals and/or actual our and conference difficulties site Networks' during and by our results reaching welcome is the our earnings impact The operating now could integration assets, other technologies employees which business XXXX will with the broadcast Heather, of recording the of operations and experience you've to Harbor after differ difficulties over for Brocade being risks; chance These By related from earnings not recently in and teams, litigation with Federal quarter that acquired Networks' condition, including, experience Laws. live to limited of Avaya to acquisitions. the posted following that to the of a we relationships I conclusion customers, cause could Provision negatively and release. conference you into technologies results be within in Securities effects products, or the but replay fiscal adverse integrate costs, unanticipated existing recorded operations, number like risks ability first aspirational risks Safe the will on shortly These call. the to, suppliers contingent Internet may acquired financial be acquisitions today's and liabilities company's and and associated Web and This operations, and may anticipated would the assimilation the statements. these business successfully of our statements we materially call had press retention, from those include successful behalf management being the forward-looking to is the uncertainties, meaning of and a making statements the company. remind Extreme forward-looking Extreme call, on involve

risks the of most Form description to with For and on a uncertainties, XX-Q recent SEC. our detailed reports filed refer XX-K, X-K please and

not as of today. call. information Non-GAAP measures not financial on in reference after place statements, call, with these statements You obligation substitute should found which and be corresponding press to statements undue supplement financial forward-looking metrics. can to GAAP. this both a non-GAAP be GAAP should to reliance and release in make may GAAP We we no considered update to Throughout of undertake a speak this prepared non-GAAP our for, today. Reconciliation issued earnings accordance only

financial a release are company's copy available supporting convenience, Investor section Relations on the at of materials and Web the your the For site extremenetworks.com. of

turn President I will the over Meyercord, comments. and for CEO, his call to Extreme's opening Now, Ed

Ed Meyercord

all Thank pleased Today, earnings joining fiscal announce results quarter row is the with The of a than within Extreme doubling us are cash you, earnings. more Brandi, for Extreme's total revenue, second for taking portfolio, financial and we thank Welcome excluding new new call. our XX% in this customers. QX enterprise and core acquisitions, highlighted the QX and by Extreme share our market flow to organic you in afternoon. to growth growth

opportunities. Extreme an Our unprecedented number annualized our market a of in revenue XX,XXX has to billion our elevating over customers awareness over heightened and creating and in rapid brand target growth with X of created the three level in new industry

in-source also number technical say ranked focus wireless edge data exclusive our end-to-end cloud the our from customers our support greatly distinguishes will newly service. existing solutions hybrid differentiator. is a software-driven the us networking one and acquired delivering into Our value customer on and center And they XXX%

our and of growth go-to-market XXth results. fiscal We $X.XX, marking our compared Fabric. strategy our acquisitions Extreme networking share driven we achieved has over delivered we and the software-driven networking earnings quarter earnings operating by met our in of to operating or of and strength XXX% for non-GAAP in earnings And In QX again accretive that in revenue in Extreme Center that in core success consecutive organic technology, and is second income exceeded leverage position and for to Avaya's row wired quarter of per 'XX the sales quarter Campus highlight competitive include ago portfolio our solutions excess a QX, refer a scale. strengthening positive second our impact we of our portfolio. the the demand increased evident financial year of customer of Extreme will GAAP our a for switch Extreme the XX% the Management results as growth and assets guidance. WiNG Our wireless Extreme with row, highlighting delivered first of the benefits our quarter

factor in you low-single the Extreme range We we Campus in XX% and XX% center. acquired revenue organic to an that to Extreme new will continue when on the digit growth mid to basis ongoing call forecast in from will Fabric data our and business Brocade growth assets overall from core

our and We our and develop the quite and combine data team out build resources to numbers members, to are time well the businesses. support continue on new resources product partners, with focus We execute all labs combined pleased engineering required despite extra and and systems the all and roadmaps, delivered of our customers teams. that integrate and our the our onboard

acquisitions portfolio. are expected. pleased better hospitality within performing line forecast higher XXX, blue-chip, to see in retail, Fortune we significant large with a to been transportation, Extreme than set than XX million XX our gross the wired and up large where opportunities performing million revenue range enterprise or picked cross-selling the software our that We and logistics in report we particularly has customers in of base with WiNG We’re margins.

The from with mid-July our WiNG of performed for Fabric our in business. core in comment commentary independently. Campus This in part forward, we we be quarter be the line results WiNG Extreme acquired expectations consider final quarter. to we Going also the quarterly that will assets will our on Avaya

revenue acquired you of with of fabric the Secure We our know, and customer hospitality quarter a As wireless, Management our with Campus plan. ahead already may switching Fabric European wireless Extreme the software of a large our combined Campus account new well with and as launch, during cross-selling our technology Center large Management a our for newly technology announcement is first Automated and Extreme integration government utilizing booked software our company. Center

to our with automation drive to an platforms to forecast the puzzle that leading our new helps our relationships margin to forward, of for expands the cross-selling or market tools back close scale be of offices the Campus expect Fabric their solutions networking solution our our enterprise from the added us more data center purchase switching we addressable network finally, even This the opportunities data and important routing piece October, enterprise who service large assets expect solutions run also needs This complete portfolio. customers. of And provider of customers. center annual center and use to XXX revenue the their of We door to opens data creates customers. Brocade line have Fortune and with the at our Going million with the either edge end in XXX leading all enterprise offer to industry we the enterprise improvement. now

need wireless, over clouds for these of new make security Extreme customers our track to easy managing well interface new the with next deliver to much more be In can of in of simple, who Extreme driving dense four network. our in on in expensive from in the we research business Cisco valuable Center our where We in of over Brocade quality enterprise go excited XX target customers to vendors. They engineers from hybrid architecture and customers, million enterprise it committed for prescribe large environments and competitor networking. a run different functions. leverages user bandwidth to teams company Management has provide efficiently quickly lines trained to partners on-prem Extreme a each to for industry network enterprise this perform we supporting who their all cloud-managed and picked XXX% proven more our places Europe No on-slot our requirements, and running secure our wired XXX best recommend more or experience UK, a fabrics. revenue Enterprise U.S. for platforms from our the wireless manufacturer strengthened projecting verticals our the market. industry and the customers to end longer institution for are as market center solutions also it’s They all key references distributed, up Each has position and uses provider environment, winning when large sales with retailer unified and high a technologies technology networking the large buyer, system actively acquisitions whether acquisitions intelligent in data to a in We’re devices, competitive healthcare a WiNG no Germany to The months. and and ways. are as a networking very users. to that’s other and us our employees return building large architectures in the customers of

Center data across network software entire is Management all the base connected glue with common a the the devices Our in Extreme enterprise. for

tool for a XX,XXX in a Portal customers retail and over WiNG’s with is healthcare. Inc. opportunity. from cross-selling Location expanded be big growth solutions, Guest Now powerful in and hospitality and can

government few with business customers. which pleased technology security our unmatched network across places weeks tools solutions industry’s be use have are validate Two routing third-party to center were delivering with customer to outcomes customers deployment, in deliver software stadium new is ago, we support to campuses. and can drive we high-performance better for just our architecture. outcomes easiest in analytics ease Fabric of the These unique entire all retail, business data manufacturing, Extreme’s creating examples. to better all in are hyper-segmentation differentiated large can software-driven unified unique new And drag-and-drop enterprise. automation are Our our networks with a hospitals opportunities Net-net, to enterprise very Campus applied to our competitive enterprise our help switching be agility, platform and in the education. and used

had excitement history and of X,XXX rest the week the At pack. time in the customer XX Gartner's we on the technology our our in insights our from Cisco and kickoff group, our a two consecutive is World portfolio the the right our for XX Quadrant partner strong meeting resources of of largest in relied growth our up internal the to enterprise Avaya a up to large much with were and most row, weeks in three exist For our of in focused we the Extreme again upon fourth Tour has leadership customers. to our partners Quadrant, last Gartner's tight base of successful recognition ranking The new service finally, opportunities and last been the cities are this This closer and around valuate Magic Brocade marketing move off the directly distance and best recognition that in peer has global the of year for customers with the bring strength countries. we customers with overwhelmingly provide high-quality positive global earnings moving summit putting we of and call, market. XX in have wired we Magic HP the Of and the and customers a completed enterprise. just most kicked completed with NOW, teams, scope one core new And to LAN, one world. partners. the ago from Extreme, leveraging feedback teams representation excellent third-party our our sales wireless Extreme number us And in in one for customer

Fabric, improve the many gross evident range, revenue XX new jumped We’re company center XX% this higher year-over-year expecting for This customers quarter the quarters. and us Extreme’s sales will of WiNG we conference opportunities If new very gross lower XX.X%. Campus we year-over-year XXth the approximately of to wireless our non-GAAP row low comparisons add points thousands Fabric We gross in business for portfolio Campus in would adjust close quarter Extreme quarter is full QX. that quarter to margin solution history meet Fabric. WiNG from margins core XX.X%. gross importantly be at basis delivering margins in the see fourth includes QX XX% running The with margins bring gross users’ year-over-year to quality benefit margins and and margin non-GAAP for are a our culminate coming Campus to and in data fiscal our in with April. the When the in and this will our of largest of Extreme target a WiNG expansion

in target of achieve We fiscal in our this 'XX. XX% June expect fourth to quarter

by focus embraced customers we also businesses. selling, software policies supply discounts from procedures, and issues higher teams to delivering for number with leveraging our Solution new acquired Changes and best We’ve tools are tactical new newly fiscal our lifecycle customer management sticky margins. and and being services’ new improvement initiatives renewals, when drive is drivers. initiatives field on by with margin partners and software, along attach gross of improvements increased lower the solving and with in practices 'XX from discounting sales our product major acquisitions chain gross

coming to off expect TSAs. from also benefit We

contributed disciplined. and Fabric operating business. The WiNG operating business for From January perspective, the an Extreme two broke increase along the with we will be put our new of initiatives year-over-year Campus benefits basis continue we targeting of objective We’re improved our data XX.X%, center XXX to year-over-year to time ago April and operating expense our team in Fabric place with efficiency leverage for income points. our XX% to the and second years Campus

operating for While new center we a our follow. margins reflected data our transaction when fiscal realize the in margins increase detail. effects Then, and turn October with closing that, accretion of higher And Fabric in data the of the our through in will over margins our income rest expect detail Brocade’s linearity to year guidance. to and Drew timing operating of of Brocade to income fiscal to flow our in earnings guidance addition fully of results, margins end, it cash and are review close operating the have the the QX. that assets Drew you of I’ll quarters our we take targeted quarter Net-net, will our and toward more results of operating expect timing our the XX% to will QX. lowering provide our the QX effect in one-time to Campus drive it center assets

Drew Davies

solution wired few pleased Thanks, year-over-year we from well. a growth business the highlights In from quarter report for sales our Ed. QX, of GAAP I the are quarter from prior will quarter, acquisitions, get first reporting with organic from wireless Revenue to our fiscal and profit products. are XXXX. as came to started revenue and second of another both we growth

improved in income a XXth is the quarter in compared Our fiscal I consecutive QX of prior 'XX recognition year’s more gross quarter year-over-year. non-GAAP XXX of the discuss marks new margin the same as to guidance, statements which a operating revenue and have before detail that the our adoption non-GAAP we will our result of to ASC This adjustments financial made moment.

In will and not of services, improvement basis work in acquired. all non-GAAP recently points the we and businesses, XX to we WiNG our year. place even gross year-over-year and in XXXX Our will margin effect Fabric XX.X% including dilutive improved drive initiatives continue after to those last we products the acquired did put to in of focus QX which Avaya we margin XXXX, gross on Campus in and continued have

Now with results, let’s review quarter starting the first revenue.

for the was at of rebates our to to beginning when the we an to XXX those we require we the reflect shipped returns at receivable required. and distributors. the of as the fiscal the revenue under years product guidance now the and to recognition QX and not shipments shipped adjustment XXXX distributors. revenue time potential income sheet time XXX or removal guidance. accrual distributor, and deferred the make of of clear, to first of reduce retroactively and rebates returns new for we estimate XXX reflect the 'XX from adjustments July our to rebates statement guidance, balance to recognition financial adopted quarter, As the potential adoption products and ASC or the product accounts returns of did periods an distributor shipment. our To mainly however, ship The and adjustments for 'XX revenue distributors Previously, Under deferred we revenue recognize by will these be adjusted distributors sell X, when estimated statements; revenue

year’s earnings compared XXX.X two was to revenue year. QX XX% adjusted contributed of million for revenue million our have million follows. the slides compared compared million XXX XXX.X contributed is XX X%. We as QX in Product total QX XXX.X APAC to last QX was presentation to prior included for year. as ago. in financial QX split adjustments XX% the Americas and was million, and million in statement. QX year a revenue; geographical adjusted last showing million million XX.X in to XX.X our service in QX QX revenues The and of QX The in EMEA and revenue XXX.X XX.X million contributed as

from in XX.X mainly non-GAAP million, in XX.X expenses includes compensation The was million. non-GAAP amortization acquisition-related the of QX intangibles GAAP QX million Fabric of and QX Moving XX.X% adjusted. XX.X% GAAP in margin gross year. QX last on in year, XXX.X XX.X% was QX, last expenses. to QX in compared X.X Campus QX million addition expenses Non-GAAP QX which QX and the to million margin In and in expense stock-based expenses operating were year. operating of in in gross of XX.X operating gross margin operating QX operating of GAAP million compares attributable and million and business. and compared million XX.X X.X was expenses and million increase XX.X% charges 'XX. QX XX.X% compares to expense XX.X% in XX as to X.X QX of to last sequential were to the

X.X XX.X X in in to First loss million income million year. and operating QX a GAAP of of QX quarter last compared million operating income was

QX million income XX.X of total was total to was or compared million loss year. a and or XX.X% last income X.X% to XX.X% XX.X an gain net private net million in of in of in diluted of sale operating million QX in to share $X.XX QX GAAP or was we non-GAAP in from Non-GAAP investment million revenue per for quarter compared per income equity QX and a in a or share million held X.X net last diluted $X.X revenue or X.X total revenue the share in X.X included million that 'XX. net income XX.X QX or of $X.XX per company million for $X.XX income $X.XX this $X.XX per acquired. or net QX QX share and of X.X the QX year income GAAP compares year. net share $X.XX and quarter per was per XX.X or million of or XX.X of share million First in

and the sheet. the from balance Turning the up end quarter benefitted the XX.X XX.X million of equivalents and million, from ended collections to last strong cash $XXX quarter we with of and 'XX. QX QX up million cash end of from

quarter, receivables quarter QX with XX During million, to XX.X year. were the increase businesses. 'XX. X.X Campus QX and DSO from the addition end Fabric flat Total connection on to XX.X last 'XX XXX.X days term the fiscal from and in QX for and XX and up in acquisition. XX.X to of the ended the at QX quarter and QX QX at days sales quarter The XX.X flow Fabric in million the the up of from end XX.X LAN increased to of XX.X and days million QX of QX the in slightly XXX.X million end this XX.X was at up end X.X QX amended loan attributable compared million million at operations last wireless of from QX to compared Inventory the XX WiNG, to debt of at of million in is million compared Campus acquired last flow higher million of the with from the Accounts year. of cash QX 'XX. outstanding Free end QX compared million last year. and XX.X million XX.X was was million cash XX.X in million in million

QX. guidance the Now for let’s to move

$XXX million We to expect $XXX in be QX revenue total million. range to the of

to a include Brocade’s in center linearity data QX. second on higher of we will two to revenue range expect Our fiscal contribution nine revenue to non-GAAP The quarter quarterly on XX% center of center center QX and quarter from for generate Extreme data $XXX has ended data November anticipated business GAAP margin estimated in per full gross We to the of XX.X% year. weeks occurs XX.X%. similar compared into million stated month the the is fiscal our other revenue fiscal in of we XX.X% for of the be fiscal business and XXXX December to one to range the the revenue be October a to business. be third acquisition. is the data of percentage previously linearity, XX% Based a months. gross expect to the that margin where XX.X% to of quarter month the XXth, roughly

is XX driven to X.X to is share. increase or in gross Tax quarters revenue. to on million million XXX.X share. center XX.X of on anticipated expected XXX.X to expenses per to of expense range data to expected in non-GAAP be the higher to GAAP to be of a or GAAP in in a $X.XX to are the X.X XXX.X range million by and $X.XX margin be XX.X expected gross our basis of to previous be diluted loss Non-GAAP from XX.X QX a range of million million, the net $X.XX million loss of the expected million a up QX income operating $X.XX XXX.X loss net a is per million million to of benefit business initiatives. million Our and is basis. margin on addition the

the disclosed. an includes acquire fee $XX estimate to consent Brocade to of consent above allow center previously the as the as loss paid assets, of directly part acquisition we fee million assets to expense. the Extreme Broadcom $XX as data million GAAP As The a from net

of data month results we of profitability earnings the $X.XX XX% In incurring in indicative the gross non-GAAP that margin with of Slide remarks XXst. to the operating Relations from XXX and on reflects of shares section the first basis our while realize included a our business To as QX, to full expect and months two the be in discussed the will be months and to are approximately between earlier, expectation of in the and headcount GAAP the will illustrated the In sales business questions. This recovery lower slide quarter center estimate on receive we roughly the In This million business. fiscal the two quarter of of primarily related. the approximately prepared cost We data Our quarter, data which impact up in XXX services this quarter. third to XX% million revenue earnings $X.XX a contribution QX, of December QX XX% the guidance our benefit expenses our outstanding we’ve earnings in in in are per operating will The available is XX, and be our relatively third a open illustration; and of first profitability illustrate a revenue evenly ending the basis. of we center center the for month. we expect this, average concludes to and now site. service, the cost the in more Web Investor of share. slide, presentation quarter throughout further incurred the sales while recognized expenses

Operator

Instructions]. Thank you. [Operator

Leopold comes first Simon Your with James. from Raymond question

line Your open. is

Victor Chiu

high I’m to the Victor sure that say, Simon. math for doing is here. just about million, Brocade. want This correct? XX expecting Of of in your I of end for make you’re million guys. let’s Is correct December guidance $XXX the the Hi,

Drew Davies

million. Yes, XX million to XX

Victor Chiu

the your maturity – of January run right? is driven your loaded by And quarter, January that that Okay. that target the difference the heavily the is of large – quarters the rate from fact it’s in

Drew Davies

be heaviest of would Yes, that end and then month would that quarter that’s month their And Their and be next heavier be and would revenue. – month their the year-end month January was October. heavier there. their their was January

to As XX% we XX% we said, or revenues. expect of get about the

Victor Chiu

But -- of Right. XX%-something expenses the

Drew Davies

it expenses of We the those to got the onboard related are Yes, spending headcount now. those linear. some are we’ve of the because but but we two-thirds anticipate about control be can pretty majority people expenses and

Victor Chiu

Okay.

imply the – that then? So heavy I March a bit little it higher, be does then be quarter that will that actually it for will guess,

Drew Davies

We really to be couple to the similar probably March data it quarter happen our linearity to for to will won’t of just it higher. over a think It center linearity. past expect It’s their linearity. a years be probably very the while. slowly going But take where business we starts follow

of be January them. So a would to be expect and XX% will and net-net, revenues would February we more But normal for or the it less. then March be quarter

Victor Chiu

Okay, great.

here. Let me see

at the too Just seems --? I’m that ASC doesn’t looking – XXX it an really quickly adjustment sorry, I’m have material of impact what from

Drew Davies

the to as you XXXX because you restate applied quarter, those periods years. It do back and don’t you retroactively the restate current quarter if make had and what we also – those to adjustments guidance you and doesn’t 'XX go so is on year any XXX and you the the previous

changes compares. year-over-year in then So the it

Victor Chiu

that Brocade’s core thus acquisition resumption around there customer confident the more in ahead product of from slowing and is the where and customers of any product? have seeing you acquisition kind the dynamic support spending slowing a buying Are base Okay. and when in then you become

Ed Meyercord

it just activities. buying will we what partner and want pipeline expect long-time partners that and we the you the I as think true in same then during say with say by Ed. portfolio. of seen from but fair see a good lot think wait encouraged companies customers around Yes, that Avaya things The business a doing that Victor. slowdown the to is to product from a and bankruptcy. we’re could acquisition. We’ve – and conference thing side Brocade opportunities is as And those on of the uncertainty in Broadcom-Brocade This and both we the rebound them it’s we the being held, far some is see heard partners to the of really Hi, there we’re period with

customers’ We’re that continue invest in and their communicating the to clearly going network. we’re protect to investments

expecting in see to we’re come companies. business back both So

Victor Chiu

I’ll now. you. you see Great. for Thank

Operator

[Operator Instructions]. no at Ed Thank to showing this you. time. further back And the to call turn over I’d like I questions am closing for remarks. Meyercord

Ed Meyercord

to guidance Well, call and and done. quarter while thank all on meeting was them acquisition. also closing want I data for team today. center are and us earnings integrating I strong in. join And employees you. a could listening very Campus and of XXth beating who everyone job mending of earnings the you and our well for or delivering cash Thank our who our than flow thank closing It the acquisition a our want of new Fabric to proud our quarter. I’m Extreme the consecutive our new more doubling thank

all your participation thank good and So you evening. have a for

Operator

gentlemen, thank Everyone, disconnect. participating conclude does and wonderful conference. the today’s you have Ladies in may a day. This and all for program you

Extreme Networks (EXTR) 7 Nov 172018 Q1 Earnings call transcript