EXTR - Earnings call transcript Q3 2018

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Operator

Good day, ladies and gentlemen and welcome to the Extreme Networks Q3 FY18 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 conference maybe recorded. I would now like to introduce your host for today’s conference, Stan Kovler, Senior Director of Investor Relations and Finance. begin. may you Sir,

Stan Kovler

reaching costs, goals litigation with results possible assessment and technologies effects these recorded the and I the website successful and negatively would These contingent aspirational today’s we of earnings provision the adverse arising employees to the sales could you’ve following U.S. and and statements. from materially may call conference successfully over conclusion release. business the technologies other from teams, posted call. is and actual products; broadcast operations Amani, ability functions, to The experience integrate the our assets, the the the remind or Avaya quarter be into we of will during of replay by press and review Difficulties adjustments anticipated operations, and recording and not business existing but limited may is securities Networks further forward-looking relationships the condition; those tax company’s harbor of to to a that shortly to unanticipated fiscal associated had from like operations, live be assimilation call, on number being of cause a financial changes integration to operating results in difficulties and Internet acquired XXXX call. Extreme the making now behalf welcome risks acquisitions customers; you earnings to risks you, recent with calculations chance laws. Brocade safe impact of Extreme involve federal These these in including, company. Network’s of to our on acquired third risks. being liabilities on forward-looking retention, meaning our and for differ includes Thank By This acquisitions. related impact and laws, our will tax the conference the statements that suppliers the could in management uncertainties, statements within of and/or experience which after

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

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

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

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

Ed Meyercord

Thank in call. and by afternoon. key year-over-year. successes; for within growth organic in core America. year-over-year acquisitions. on North Extreme X% our of quarter Core the you, total joining we earnings highlighted Extreme’s in experienced consecutive particularly revenue A Today fourth growth first, to business portfolio, us our announced XX% results with strength pleased wireless Stan, thank Extreme Welcome were we all QX excluding growth QX few you organic this

cross-selling Second, Europe. disciplined the on XX% experienced in and X to of go-to-market Avaya sequential focus particularly strong continue we fabric, as growth Layer in success

built deals. by was a acquired into we in a with seasonally quarter-over-quarter quarter typically full pipeline sales during center Brocade, $X improvement million first two the accounting Brocade, our and revenue however, for impacted data a weak few on purchase factors; primary in us; adjustment Third, with quarter our discounts

one version force; backlog QX also with of sales separate Oracle three SAP. started two the We We quarter. of versions and built during the million versions of $X of

said we systems the third perspective. teams. to Extreme business IT some system. a runs orders better performance and are visibility one day business QX, believe on all complete now for heading of our with migration, in cut-over one our built entire have we and sales transition. systems Oracle booked business had But our we into consecutive Entering the take and bookings it one Now time the QX, of from our by shift and would of first instance we system, force on we And visibility integration excellent that

revenue million X% remains grew adjustment. sequentially guidance. $XX our our in year-over-year, Extreme the of million, with accounting revenue first All-in, Avaya to core XX% acquired totaled quarter acquired growth organic line post $XXX also million, purchase Beyond $XX rate Brocade’s full million $XX while run

XX.X% non-GAAP gross early margin Brocade a the quarter. by in affected in at deals large came few Our

Although, achieve our to expect we XX% long-term goal XX% and XXXX. margins QX in were of them XXXX, targeting gross reach by income operating we now to fiscal

worked we We Our the XXXX below earnings some for quarter. guidance our non-GAAP QX $X.XX of through results our range. despite progress challenges delivered fiscal just during integration highlight

as favorable Our encouraging conference Arizona of received dedicated continues in late now to for Connect technical across all along training and that large retail Insider attracted Feedback press. Extreme a partners Attendees hospitality. customers Extreme and very training Extreme audience received solutions, in be very of at Connect are verticals Certified education, with user Phoenix, key we’ve April community and such members.

each Our by when surprised the network. customers usually depth teams through and everyone new technical encouraged our the of our place partners are in take portfolio and

centers. and support taking systems IT new we’re together end-to-end smart agile highlights truly our bring customers With for our focus the a us, go-to-market approach of acquisitions that unified data services automated our centered around focus. our in and behind We integration the networking applications, edge campus

and intelligence across software agile solutions. and journey. out smart of message deliver on applications Extreme focused secure edge across driven and solutions center verticals by infrastructure agile to automated to digital of our partners, a These variety a campus the on consider a solutions. software rolled continue branding and beginning our in target driven employees customers data embrace transformation unified adaptive Our the this QX, we’ve as partner At

customers Smart distributed businesses edge from business. adapts from to shift choice Our campus managing requirements. in diverse demand their architectures the us telling cloud that precedented wireless supports and to managing are network they technical the

manage private customers on-prem edge can edge management allowing from application multiple consumption a cloud or smart and cloud Extreme our service, as smart from Our models.

You’ll a products, products. we summer and be hearing lot extended range edge XXX.XXax broad edge smart and as of fall wireless this about a switching introduce including

agile, as launch campus architecture expectations match policy our campus its unrivaled of this in make and networking, intelligent automated customers. the the for our Automated is networking secure for and Our based digital manageability. business. significant upgrades number to marketplace a to a priority key fabric-enabled campus redefines continues headway in of simple Designed simplicity

than faster generations. Our average tell us and on customers campus changes XX makes adds automated prior times

to continue solution. enhance We campus automated

cloud whole challenges. In portfolio in supported of campus is this data is enterprises competitive area the by as business Extreme’s portfolio help optimized agility analytics XMC, meet maintaining speed summer and across organizations to and advantage. the Our have solution for is of center well. we at already will support networking, agile these Extreme critical cloud

to the OptiScale routing on into utilize cross-domain April Our network this agile we In customers for programmable solution introduced routing, internet lifecycle visibility network programmability enables platforms, switching pervasive platforms. providing the builds easily of which data automation. is and year and center built

cases features. We and continue to other enhance include use OptiScale to

under a when time markets is happening IT that been are at tremendous undergoing end pressure. have Our budgets change

more is upgrades through multiple priority devices smaller show mix. Campus and automate CIO offset solutions. well customers like larger fixed cloud improving software to sales under platforms. at see This storage, strength budgets of the portfolio recent to our for relative the portion of gives using growth environment refresh by However, less solve The are of leverage product premier which in market, in as essential Extreme focused revenue segments, actually and At wireless is their in much in with portion us that portfolio switching, solutions switching to our driven in deployment survey the Extreme. of as our edge market on one core XXXX playing we XXXX complexity our positioned are software way marginalize only we calendar a a confidence views. significant in demand alternative and key focus across driven many for competitors security that portfolio, is the this provisioning to hyper-converged of a modular software pull the our now different continued run-off services are servers, the and who Extreme our and platforms. an

We’re field. customers developing more in our prescriptive solutions the for

Having Our headway to the completed the continues to in early Avaya our from marketplace. $X.X systems this of deals We quarter. quarter are sequential in quarter. once $X unencumbered we of December, business in in QX, and migration March TSA in growth in campus for run $XX rate expect we grow December from agreement the cross-selling pipeline secure into June automated launch our business with the million again million, which Avaya recognized entered million a the up make the

the U.S. the what few During a cross-selling and and I $XX.X we’ve examples June these million revenue, both to were. opportunities cross-sell quarter quarter EMEA. million to grew in pipeline March our particular want in with highlight strength recognized $XX of

suite, for their to implemented First, analytics hardware user and a create deploying experiences center large staff. and ExtremeWireless, software patients, and healthcare and our switches solution university unique complete engaging physicians

new customers center our and Second, analytics in management deployed Extreme’s we expanded exhaust the hospitality engagement beyond existing and with for vertical, switches solution application.

more relationships Combining strategic our competitive full efforts. deepened their of Fortune dividends XX with key and software differentiated even to continues also perspective. suite network edge technology and a to yield Avaya’s from core became cross-selling customers fabric We with Extreme’s and several wireless,

is a to are The of of campus deployment, X strong is our the and fabric driving demand We of business networks a in high pipeline the across segment healthy Avaya our business, demand our being our solutions. which fabric of ability now level rebuilding for enterprise ease security generated pipeline solution. in Layer for our by

saw run a QX annual fiscal target We to higher margin in $XXX million a gross and than level XXXX we in continue growth at in what QX. rate

While our that we there next residual generation we challenges SLX were the is by in about platform, are now field rebuilding. switching excitement with out data cases our Brocade’s business, as routing impacted we center use and pipeline in combined build the

MLX are customer engagements. VDX our platforms with automated Our switching routing along tools and revenue driving and deployment and

in their from addition progress support that solution. efficiency perspective. agency U.S. our government We thermal The business customers with is and the continue performing as make such to an deployed to to products key high uptime unbeatable components continued VDX

introducing validated service bundles cloud entire We’re software our across true and of bringing enterprise hardware designs the to solution customers. and Extreme portfolio

the On easier workflow cloud the sell When our making are data to for solutions it combined our in specific delivering margin quarter impacted can use A cases capability, few by and cross-domain customers and that designs we cloud validated margin are points. side, enterprise deals our our and support solutions. deployment basis its customers. being embraced composer XXX in early center architectures gross lower deploy about our very reference by our Brocade with agile

our businesses, continue long-term discipline in year our acquired margins we XXXX. gross impart reach we expect to As early our to fiscal XX% on target

gross Our non-GAAP year-over-year. third margins XX quarter basis grew points

we growth range pipeline us June visibility to significant cross-sell improve focus $XXX I quarter, include into into across June to revenue reiterate to all our XXXX. point, One allow business out million. fiscal improved million business. to in our geos As the on rebuild wanted and The is we data opportunities the the center $XXX should target to look project heading and verticals, QX in into a of our

gross for data at purchase revenue to range adjusted in target center the margins million our low forward. annual generate remain expect We accounting XX% and $XXX going revenue

our continue XXXX build Brocade’s the and business on out process remain work fiscal when was pipeline billion business. through an half teams confident basis. following annualized of a this run our we second We in period sales rate taking $X.XX yields a with to Net-net, to going revenue

to assets X% and to million acquired run fiscal in on expect that grow we XXXX. a are recently Avaya Our $XXX rate X% Brocade

core fiscal maintain business $XXX into business million run XXXX this next on we exits Extreme a Our rate to year. expect similar and a rate growth

road product our XXXX required one to into into growth appropriate under the expect all and review to well resources businesses. and facilities move partners, employees onboard over to our build our guidance engineering and our we systems for execution and execute on revenue to despite With a fiscal integrate employees, to continue time data our extra combined and our and maps, teams develop resources, it that, is customers like continue businesses labs, combine that support now basis. to results and in to With the our out we I’d our X% combined Our and detail. like-for-like annual the improved acquisitions roof, heading believe normalized that X% Drew turn

Drew Davies

Thanks, Ed.

year-over-year as the Let’s result, of first full to quarter grew of $XXX get the our previous quarter-over-quarter. Extreme from acquisitions. the XX% And in our combined million or report business had and Also from highlights pre-acquisition started our In $XX with our recent and revenues revenue million X% organic quarter or of quarter. XX% and of growth X% we I’m XXXX. few third pleased fiscal revenues QX, a year-over-year

XXXX from consecutive Our non-GAAP gross basis eight quarters. XX points to margin fiscal makes This in increased QX XX.X%.

non-GAAP increased same quarter now to XX.X%. from have compared margin QX We our margin our declined to the XX.X% year-over-year. gross gross Quarter-over-quarter from

revenue $XXX.X $XXX.X Next respectively. the compared X%. from QX, of was was was to in and contributed government, campus $XXX.X Revenue The of $XXX.X in in revenue by healthcare, year-over-year as manufacturing, QX was of for I and would in QX result education, of million service a education, QX and increased million and as million government, quarter QX QX last million in turning in year. quarter-over-quarter to million order we $X.X geographical to EMEA fiscal and and and acquisitions revenue QX to QX Product in fabric contributed that was $XX.X contributed $XXX.X QX and year adjustments. center like split of $XX.X data also in year. $XX.X compared million note The million, revenues service APAC XXXX. last $XXX.X top verticals in revenue, $X.X to compared to $XXX million ago. not purchase our follows; communications did compared communications, revenues million total last million million $XX.X million recognize to and our five QX, accounting QX Americas retail XX%, XX% manufacturing revenue, million

goods $XXX.X and was in and XX.X% $X.X $XX.X QX year. million, gross to of expenses margin margin non-GAAP margin last R&D, to year. in of year. operating were the QX and the expenses compares marketing, to data $X.X million restructuring $XXX,XXX, in million business. sales $XXX compensation XX.X% and acquisition $X.X compared to XX.X% QX million in million expenses QX in Moving gross to compensation QX attributable amortization compared includes expenses million non-GAAP $XXX.X expenses, were million of $XXX.X XXXX. $XX.X million QX gross litigation expense last sold, and in was of The expense expenses QX, intangibles one-month charges million, related operating GAAP QX operating in million cost in center addition in of and had QX XX.X% on compared QX million. stock-based and QX million, We from of was QX $X.X in to in operating GAAP in Non-GAAP stock and of $X.X operating XX% in $X.X of GAAP of sequential charges million increase of expenses settlement G&A. of mainly in Brocade which and $XXX,XXX last XX.X% $X.X

operating in year. QX, a of compared loss loss operating last $X.X $XX.X GAAP to in of $X.X and million loss an QX million, quarter Third was million

QX per or in and or operating $XX.X million Third $X.XX $XX.X and income compared or total GAAP or $X.XX QX per last was income and diluted $XX.X for net or QX a net $X diluted per QX or to compared $X.XX QX, share share of million quarter was $XX.X or XXXX. revenue total in per year. non-GAAP income million to share in net $XX to share of million was $X.XX the million for QX, $X.XX or of million net million revenue X.X% net a compares quarter million $XX.X million last of share loss or loss in of and $X.XX X.X% per loss in of per revenue total of X.X% $XX.X in share, year. Non-GAAP QX $XX.X

from of and Turning quarter the total end from to $XX million, at $XX ended down quarter cash XXXX. the balance fiscal sheet, last million million down the end and equivalents in QX the of QX cash $XXX

declined restructuring for consulting, to spending related integration CapEx, for due QX transition systems not to balance and other infrastructure, facilities IT and acquisition incur and QX cash we and do QX. and beyond Our that integration spending expect services, in IT mainly

posted Slide website show added earnings Relations typical capital these included illustration, our release – of For to spending. Investor view compared number to presentation we’ve our we’ve on our in section as the what XX payments we

end cash $XX During the was from flow compared compared million higher QX up of was end end addition an Free million last $XX $XX $XXX acquired center year. $XX million QX, of of and days quarter, an cash flow the the to the were million increased X of $XXX of to sales an million fabric in QX of in million $XX XX fiscal of in QX million an QX $XX and inflow Accounts DSO increased compared operations QX from XXXX. compared by an QX XX days outflow of outstanding this businesses. from the outflow and million days of to of with XXXX the of days at million days in and on outflow up year. and to QX, outflow to $X XX QX XX last data receivables inflow campus of in quarter in

Our loan the with built available loan at remitted terms in million. million – acquisitions. million, $XX inventories. million Services Transition a the was campus Total impacted typically Agreement fiscal acquisitions. a be and our by year. payment new campus million QX. we our has DSO data XXXX to inflating up to the and fees DSO amended days, $XXX,XXX QX is interest standard debt. and and collection increase outstanding QX The then is addition in of of of the receivable quarter compared initially last debt the from million and $XXX $XX center the on of revolving loan $XXX last Inventory on term XXXX, total end closed impact the from campus TSA the the ended of the the amount fabric days points credit The after first rate less the expense XX This the interest acquired quarters behalf revolver full May This last basis term of net X, DSO. $XX into rate million On collected loan of of $X our days the temporarily XX to outstanding. The our these outstanding million over is QX accounts line from for fabric $XX repaid end outstanding the from Avaya Under than XX at term. days. three QX load center in been of additional the outstanding at on that down there attributed new TSAs, of new Extreme the and quarter, will loan XXX and of the will $XX collections The cycle in our on of on for previous out QX $X.X data approximately Brocade customer million will result term that be and will the less term fiscal end

QX. on move the let’s guidance to Now for

million. to to QX from to non-GAAP gross XX.X%. the to of XX% be Tax XX%. million in and due higher to expect QX to in is revenue operating million in our are range of expected participated range total QX, in – of to basis. million to gross in margin XX% margin We activity $XXX.X expenses to And and be is in estimated QX expected non-GAAP to QX a of range $XXX in jurisdictions. be GAAP $XXX to basis; GAAP revenue be be a $XXX.X on increased in a is million a the previous expense on to $XXX.X million quarters $XXX.X $X foreign million up $X.X million range

provisional income And to the the and financial to results. We are pursuant recorded QX enacted balance statement sheet. our amounts recently tax continuing year-to-date legislation U.S. we SEC to evaluate the guidance, our have in and impact

expected recent tax deductions attributes earnings, believe in limitations changes on our been We we’re the a on new accelerated full is to carrying U.S. to QX million range an million in tax erosion certain the U.S. million a U.S. likely we utilize a laws QX, have of $XX.X We in anti-base will subject in of Non-GAAP of prepared losses GAAP we addition million per to due $X.X range million a and or is portion including expected a provisions two approximately outstanding taxpayer expect be to three This years In net $X.XX basis level share. concludes tax tax years. – those forward. shares of and in or $X.XX cause to will to accumulated diluted on our $X.XX $X.X to to rate tax $X.XX net U.S. be income operating income XXX.X us years minimum to the per to remarks. $XX.X foreign not to a outstanding. average be share. of shares the be

We open up call will questions. the now for

Operator

from Erik Instructions] Securities. question comes And first our Suppiger with [Operator JMP

is line open. now Your

Erik Suppiger

Thanks the question. for taking

you can guidance? already a during restatement, or on just that or the then that quarter off, Brocade your to revenue was surprise – First I’ve was the got into And factored you clarify

Ed Meyercord

Erik. sorry, Yes,

during have is you acquisition, $X adjustment we the quarter. we lose that another million part million. had an for to And $X you part was had accounted the So make when of and million to revenue about $X then that that it deferred

Erik Suppiger

of in those those assumed guidance? both Were your or one of already

Ed Meyercord

million $X but $X a guidance, in our Yes. We the assumed surprise. was had million the

Erik Suppiger

customers Okay. during And customers was were wireless And Avaya to Avaya the sales your to sales quarter? Brocade how then secondly, similarly, in your quarter? how Brocade the campus

Drew Davies

Yes Erik, take let me that.

– there. campus time, customers there, call, sales bit but the a taking building don’t it’s of do at Brocade, on several pipeline point see little are a initiatives ICX we pipeline and have we quite from We the have number to we opportunities but this a of comment have up we takes underway so but customers, it for a

U.S. we driver been December across pipeline went campus the On the into ExtremeWireless We Avaya that driven in pipeline largely with growth about customers are selling of by the and then opportunity side, sell a fabric fabric big talked the and also, cross-sell. the us really being fabric that for technology we wireless, growth commented along to Avaya that’s the now that in a and the in Extreme of we and happening $XX grown a technology. geos, the is But grew our and talked And million, quarter, into we Europe this to about million $X.X by wireless. it’s driven had that is then fact it to and the $XX lot million,

Erik Suppiger

you. Very good. Thank

Operator

Q&A you. for call [Operator remarks. the concludes This turn Thank Meyercord to back Instructions] today’s now to like over session. Ed closing I’d

Ed Meyercord

the Okay, I employees appreciate thank could and call on are everybody want us And I that, Amani, all you today. listening in. you, who thank to thank who the join Extreme

We’re which the of set is We to hope our quarter, up in for to pipeline June a to strong looking improving execution fiscal to the XXXX. you. going us forward speak

May Media at We Company Conference Cowen XX, Technology, have & on well on a coming Telecom up, Craig-Hallum as May the XX. Conference

up thank with next we Thank and for you. you So quarter. catch your you participation, we’ll

Operator

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

Extreme Networks (EXTR) 8 May 182018 Q3 Earnings call transcript