EXTR - Earnings call transcript Q2 2019

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Operator

Good day, ladies and gentlemen and welcome to the Extreme Networks’ Second Quarter Fiscal Year 2019 Financial Results Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions].

As a reminder, this conference is being recorded. to call like Kovler. to now would turn over the Stan I

may You begin.

Stan Kovler

second and detailing Extreme Thomas distributed Executive and to fiscal you, Ed We are welcome Thank operator just and President the Extreme of Relations. me financial conference results. an quarter CEO, filed Finance, I’m Extreme Cleaver. Networks’ Investor CFO fiscal XXXX call. release Networks’ VP Stan XXXX a of Kovler, Rémi Networks’ press Director Meyercord, With X-K today and earnings quarter second Matt

digital I For statements which commentary your that you QX non-GAAP about not our press in website forward-looking convenience a from call, would today’s CFO these may in filed copy future during SEC. pricing can Extremenetworks.com. include factors section XXXX both operations, by business We risk and uncertainties materially and results as reliance are cause of Extreme statements reconciliations as like discussion includes on these the reports release initiatives. anticipated Relations our financial to financial and fiscal and our undue that actual you with to results, Investor to and forward-looking remind our presentation our involve risks put differ Networks’ transformation our available results GAAP those the caution of they statements and described products, to at

when we required plans made statements as forward-looking no on this of call, have any today analysis duty For them law. our to reflect or by except update as

CEO, over Extremes’ and Meyercord. turn Ed call will the to I Now, President

Ed Meyercord

non-GAAP Today, better expected, in of year-over-year X% $X.XX our share. Welcome joining for results highlighted by and us to that fiscal per earnings growth were you morning. than you, Thank thank QX Stan, quarter-over-quarter revenue QX million call. earnings announced and $XXX.X to X% total and we all this

year-over-year and three bookings Our during quarter-over-quarter in shares our and verticals. $XX grew we solutions our From perspective, the worth a quarter. gross all highest was repurchased and pillars the of we margin all quarters industry in million our key across

win of customers to deals set continue as a embraced broader large solutions. We our

quarter, $X products had the our and we During deals representing over solutions million pillars. services software, XX across a

well We’re growing been of pipeline revenue our XX% is the grew competitive and which from are back portfolio year-over-year resonating deal I greater quarter-over-quarter. driven customers. next around concerns from European scrutiny recently larger sell four market we for sequentially the total governments software also are product globally place. In total selling. region the EMEA with a our cross pipeline once APJC by story quarters where opportunities teams Asia, our opportunity our solution driven meetings for large products, standpoint has growth again. us the our in XX% sizes Huawei and came European in and and believe grew with an security on creating placing

We many secure are software and this a automated context. in European customers and our applications are trusted provider well to products resonating various campus

campus strengthen in grew in service these Both saw As the Overall, QX verticals. for higher that slightly and key negatively to grew a In the vertical for consolidation our and and softness XX% ed nice our in impacted our in continue revenue and a our and healthcare, automated will enhance expectations. XX% Americas of we and result, in pipeline transportation logistics continues provider year-over-year by team to team K-XX data fiscal Americas, quarter-over-quarter our revenue center is provider verticals. our distributor service build. our in business our model federal sequentially coverage ahead made rebound We leadership the EMEA hires and growth market. in our new key

products. growing of Growth We both record and Our as revenue posted applications; attach our management of accelerated that manage and backlog growth rate and improvement another future. party service agreements. control quarter based software such for Extreme can for differentiated software in bodes with in increased analytics, networking multi-year cloud sales quarter. bookings the to and continue teams in and lead applications our with service that the in contribution well We overall services third

of Our team risks in most tariff to Taiwan end that excellent the mitigating aggressively tariff to an on has into uncertainty of price as trade this We and job previously XX% of of the increases which between implemented response exempt the the we and November to ship expect announced products. and China our XX% from at affects hardware Xst, of we U.S. the move products U.S. our done increase March. the moved in manufacturing September, be to

customer In additional solutions looking approximately we have QX. a to to buying forward in forward X this, that momentum are launched the customers X during our from throughout Customer XXX.XXax from of as benefited came is that addition, set XXXX. week, Wi-Fi launch of Wi-Fi calendar Last first and million high we building products. density who we expect of quarter we unique

for customers our We their artificial are auto also RF capabilities to machine with the first intelligence tune to networks human without tools and APs management that learning intervention. market on will allow

by single-pane-of-glass Wi-Fi border integration Data the X in will we data products April. covering see center as solution to Software we available AirDefense, ability. prevention stadiums software differentiated interconnect have ranging pre-orders system, truly expected programmable that already layer for We Center to for a as integration full our and first-to-market launched enterprises. full Agile customers such with products and from radios, guest, In upgraded suite wireless exchange, be of security and location solutions routing, augmented management new November, creates for generally analytics, our and our intrusion XMC

expanded coming software XXXX, have to of growth Looking a we of the our market upgraded ahead margin from revenue and multitude product for products drive new rest we and that portfolio. will believe and calendar and

many May. to our at innovations We’re Conference new of very excited our Connect share in

center, our and distinct had auto city we in the a the had requirement our strength technical Fabric assembly ease European for features, implemented city create Memphis, of A Tennessee from quarter, offers support surveillance on much implementation as its basis Memphis for the Connect is and smart solutions use and strong public city built a on-the-edge it for and in security, and solution value MetLife others competitive among control, The their University technology cloud and customer of its management our and our safety attach Cubs of wins. using with our smart our plants. augmented differentiated XMC division infrastructure. the software portfolio The segmentation capabilities solution manufacturer the transportation Giants, transformation digital to lower networking despite and large This of space a the analytics based its on of several and secure of departments. the mobility, future features proof exciting campus Huawei. hyper a home software. We networks community at and of with rates Jets Stadium, with of sports with entertainment athletics wins and Pittsburgh of analytics, Chicago bid

vertical only of continues our products this and differentiated campus to in to automated EMEA solution and Wi-Fi with globally grow management in Asia The and Extreme our the customer telling Cloud for for over winning momentum will teams potential clients, their streamlined X as solutions XXX us their recommending NFL. Extreme solutions launch students. are our to support reducing for implement references network on strong a substantially Industry Our management, analysts Coding like have and control software to team, higher Connect Arkansas required fully education accelerate selected they Central UCA including our Arkansas and software, space, being achieve are are Academy technology strong, infrastructure IT a University to first goal campus analytics for of the its this their network human networking complete secured support a for In UCA Appliance the buildings of plans of its trend. XX,XXX the ease-of-use. university. errors. based and Fabric

control software means, data In our can’t highlighting Insights Our in competitors named our and Customers’ number wired Extreme that LAN for simply customer ability November, and our true X replicate. wireless pane-of-glass’s Peer center, largest position single Gartner differentiation service. was Choice and

our modernize drive and productivity. and making to Our execute go-to-market continue sales business plan and transformation easier we our us. is partners sales do with for to on this customers investment enablement to And infrastructure in it digital

demand, our HR. and upgraded pricing, for portfolio. new roll entire This out tools of the We to finance quotes product improved number field, supply planning to to to improve systems quarter, internal and and for from inventory have a time automation started we our market to ranging

the ahead, Looking consistent March QX, QX. expect forward to buying of with came be million despite we X seasonally into fiscal fiscal from that a and QX quarter QX weak revenue

be XXX range We the and consistent expect with million in margins be revenue gross XXX to million to QX. to of

the our $X.XX $X.XX manufacturing Our X% negative gross expected resulting impact margin The in approximately assumes EPS Taiwan. range. outlook to from is transitioning outlook to

quite Chinese want concerns that exposure a our X% at Given slowdown point to revenue. about China of some in you macro investors the is less if limited out than have our economy, to

Given manufacturing. and exposure, exposure largest don’t our passed as our government China of vertical through believe customers retail to customer have ed, many higher healthcare, I such

international that, allows are to or not business by With on Rémi among our our quarter. I our we balance region the geos overly verticals over this CFO Thomas. of in as Our diversify call turn to us reliant the will strength vertical risk evidenced new as

Rémi Thomas

Thanks, Ed.

high share fiscal end our noted, of and the Earnings was with margin X% guidance. leverage. quarter-over-quarter grew at QX, operating X% better of guidance gross the and $XXX.X year-over-year benefits EPS end but of Ed range. including our high million revenues As per exceeded also $X.XX of our similar

actions To grew on reduced and that XX% consolidation This Our product previously of the distributors revenue QX, another distributor by consolidation number previously in center as data continue end, of we plans execute outlined. $XXX.X year-over-year to we’ll quarter-over-quarter. outlook also business X% we noted. X% our the million reflects and

revenue out XX% traction continued year-over-year increased and improve multi-year seeing rates Our we renewals to offerings the million quarter. X% Premier Services And last quarter-over-quarter. services Attach quarter. and in of with the rolled we’re $XX.X during were

EMEA in manufacturing, customers local our the government and once the effectively. market internationally. in even to performing the During vertical was quarter, QX. to embracing up our verticals were finish and the XX.X% remaining both the again revenue, governments XX%. five. in XX% growing margin federal Non-GAAP closed and both contribution very and and for see differentiated healthcare fastest compared includes our state service XX% XX.X% slightly we This Americas the the remain to from product top out ago next APAC consecutive year The total education, provider U.S. third where EMEA quarter, XX% quarter. Globally, top gross was out portfolio largest

total gross the from of estimate gross We margin Xst. despite took that was higher to tariffs more the component headwinds in impact negative actions margin than on had price last QX. tariffs offset quarters, costs November one that in three we the and highest portfolio Our in percentage our approximately point a

in non-GAAP Our increase and from in R&D from compares higher we The slower new product in expense the mainly of expenses over margin acquired spending were year ago product million the full ago and primarily the focus quarter, $XXX.X at gross revenue. in sequential non-GAAP Non-GAAP operating from product the XX.X% to and consolidation to center year in the data operating introductions. QX basis, XX% a to rate than quarter up XX.X% time of on increasing quarter. increase QX QX. in a due assets as $XXX.X million the $XXX developments resulted operating the year-over-year first of was our continue expenses On

flow improved X.X% margin use cash we the in $XX.X result, than in first and to flow in As half $XX.X cash operating million of working of quarter, ago compares million of X.X% X% compared $X million our and cash is to of generated ago the capital. XXXX, year by in $XX QX. of Free a collections free the driven which in less million year-to-date to compared year

we strong capital flow make of continued our in digital transformation. own investments the as year, continued even our second into expect generation We half fiscal to cash

of repurchased XX Our end the million year-over-year XX equivalent September September. fell our balance cash cash worth DSO $XXX.X a $XXX.X at total XXX the end and We million days stock $XX at XX days of price from was end average lower. days of that share. of a year. million of of an December by shift Campus I at slightly of basis, quarter-over-quarter. earnings up year-over-year is reflects what the The center of followed On DSO TSA linearity weight the referenced period businesses from the and our we substantial acquisition data were release, for Fabric the the sequential in decrease immediately last strong to our drove on and

offerings of and from in service also growing including renewal the bookings, ago $XXX revenues growth significant We progress made multi-year higher out in deferred to quarter $XXX.X million on in rates. QX and software year $XXX.X attach

a $XXX.X actions pricing range gross accretive margin margin estimate expected the on and have provided. and our turning tariffs mentioned, to will have of the of related shares on of loss GAAP in to a $X.XX our per $XXX.X remind Non-GAAP $X.XX QX. million XXX in on buying of share. or be $XXX.X increase variable that that to in to to overall a million worth in million. in expected earnings impact million payroll we to from to million mind, basis, guidance, basis OpEx of range gross $X.XX to Ed $XXX.X In anticipated operating want we up $X.X be total in to will net of XX.X%. million a to $XX.X to primarily income a forward for is lower to be million on the gross range loss $X net net on excluding a QX non-GAAP a to in compensation the this we for answer and to in to QX QX of are to neutral penny the million $XXX $X.X of QX gross non-GAAP the The would to negative we and be Now, to we customers GAAP slightly we that be the outlook basis $X.X expect $XXX.X repurchase. operator margin be or expect is million factors GAAP I that million of share. QX, a range investors approximately expected Overall, XXXX. non-GAAP expenses like is I of GAAP XX.X% million related revenue any outlook shares the range to be to income a expect margin QX, to the impact and With XX.X% the to would sequential We in average outstanding now the $XXX begin turn XX.X% point expected $XXX a continue With to may it income costs. basis, of is over that and session. net question basis. range diluted million to

Operator

[Operator Instructions].

of Our first question Needham. comes Henderson from Alexander

Your line now open. is

Alexander Henderson

Hey guys.

was countervailing. remarks there of are So couple prepared you seem that talked about in they a somewhat that pieces the like

then a the the production are from on quarter said, you you the fall the of have most you should upcoming out. one in in said hand You expecting to quarter, recent impact moved which that XX% had X% tariffs. But that to Taiwan,

quarter I So manufacturing into that? X% from -- the the basis current as to past move, of some tariffs the XX% a way do that look I improving hit about Is from by the June take the XXX plus points? think the quarter, right the hit

Ed Meyercord

Hey Ed. Alex, this is

to impact way the that, have going tariffs. is to still of have about that think the I we’re quarter. Obviously, March think it the we in the

the the have March quarter. the in price of also increase benefit We

manufacturing the of and the happen costs at March. incremental shifts to end of experiencing are We that’s going

products we’re shift the from chain of of the going until to and China supply versus Taiwan QX. coming benefit have So not

we receive that can guiding that would that, point we’re what that the you is if gross know XX point. you and that’s margin range, think X expect that to you So so we benefit to there is attributed add a midpoint know

XX% over quarter. in QX We to and is our in expectation have guide occurring other our benefits fourth

Alexander Henderson

Right.

had me said just before. reiterate to So do what to to I

moved the Right? if have June impact, quarter I in So see that quarter, you’ll currency the I falls I that persists out. tariff because XX% which lose of the X% take the March but into production

Ed Meyercord

that’s got. That right. -- That’s I -- all that. That’s

Alexander Henderson

the addition cost of absorbing move. to in that sold And goods for out. X% impact that, falls I’m to That

Ed Meyercord

a -- That’s in offsetting item, are is There costs that. which that’s more is Taiwan an is in correct. – So there’s fact there costs China. is the that than expensive

So increase overall costs in X.X% we’re from in products Taiwan. a coming expecting for our

Trump September XX% there will negotiations to those and of when and over the out in with be will what react China. will then what tariffs So we’ll mind and administration phasing Chinese the be that with still provide be And come that have you that, to timeframe happens to some through happens. keep we offset. But the ready from government our products consider

to our ready fortunately is we’re respond So team nimble. now,

just We’re the we’ve through practiced because this, exercise. been in

products from we’ll and products cost depending have what to incremental if on the obviously to the wanted not or risk even depending initiatives the react and a coming we tariffs pricing than So shift that’s of by on more comes happens. less react on either have altogether in cost out though China But we mitigate the Taiwan Taiwan with shifting what the to X.X% we China. XX% with X%,

Alexander Henderson

Understand.

question pricing of was on it understanding you point. to that ask all So initiative. that wanted immediately at wasn’t There grandfathered in products the your a effective November put It’s a in was first, the second I pipeline. it deals result on of you the that were is portion but business as my

the actually how of to increase So in Is of the in increase represent shows versus out full is of question total? quarter. price I December X% percentage up the what quarter March pricing the it an X% or X% will it guess the much

Ed Meyercord

that’s what Alex, the say point. I really guess Well is, I that’s, would

You immediately. XX% tariff September know effective timing of that differential XX, it’s

had orders provide pricing great days’ November month, would so that in orders first our to of to takes of XX% and effect. notice, small in then Xst close percentage in have a XX come normally had linearity quarter we where first have Meanwhile, We our month. that that the we we

differential a what that what that quarter. that during headwind -- and timing lopsided bit margin it is So caused was is the

Alexander Henderson

figure got revenue that I’ve side. calibrated. is margin I understand on trying think What to the the on I out side, I’m

or that increase, only actually X% And that the December X% X% had quarter. then of a another accrue So is price right you obviously you have X% sequentially, in you what the mechanics? had if

Ed Meyercord

can it realize in I raising cost -- it’s the behaviors think, confusion in was I of the also we way. the a and you of bag only have to that you consider given are and think that about at roughly it’s that needed guess it’s lot. you that when products to the decided I discounting U.S. of that think we I years XX:XX, say rest average increase, put X%. We have raised when to X% do all world. affect And put rest our world X% we some price you think But There the could We as it years the recover component time. why in to rest we and of U.S. price tariffs to world, field out same

was as deal all has deals you deal be have our that’s so -- there So to discounting of by authorizations. behavior and discount managed know

our The is have other where are revenue frame term let’s contracts They that roughly of to XX% pricing contracts where price. have thing just call customers we we that XX% can’t we have long weak. say let’s adjust

So a somewhat that’s also limiting of factor.

that I the manage a equation that. variables different enter have lot we that and to guess I’d say, of there’s So into

of We window, where we outside to pricing discount. price have of want lands for take customers the time a also may higher have and a care and they a long been negotiating deal the

expect discounting see over really as the to the pressures view we’re return we we QX pop more to going expect one. benefit those expect. to that’s see and and We where that levels really So and our term to normal in long near-term we

Alexander Henderson

there consolidation, to distribution The could. I impact was if that question an the more period. during obviously One

year, June at of distributors VARs the what if was So are remember by and where the What supposed you? of XXX to that? down you -- I buy that be correctly, was impact were quarter. is you on and think were to XXX the the where by end or I XXX

Ed Meyercord

beat the we end XXX. were We that of Yes. at year, down to the

so impact book-to-bill the -- that quarter that and And of heavier States. effects this the in United of it ratio, it kind the was in

we’re we’re pretty this close complete. to at -- feeling we’re so like And point

through at look that’s distributors, distribution. If flow top products XX our of the roughly that you XX%

finish job this at done a almost that. the like And time we’re of of So have we line. feel really our stage good teams game, the at our

Alexander Henderson

revenue. you be discontinued you bringing sales? impact have do an you on recognition said inventories your sell going And So the at Did to down in of were players. that

Ed Meyercord

you had than that an bookings report, Yes. for an Yes, the number our where was case. revenue the quarter had and that impact the sales. number that Certainly the know we the second higher that that that on would bookings impact was be

Alexander Henderson

quantify you Can it?

Ed Meyercord

haven’t. We

minutia there We haven’t are provided of diving to those different and lot really of was lot of with that all globally up in in quarter over guess distributors yes, -- the don’t book-to-bill a quantification is second to I different all of get into if X. the and Alex, we pieces moving the definitely caught [ph] components. want But that just because a the but

Alexander Henderson

will see floor. I Okay. the you. Thank

Ed Meyercord

Thanks. Okay.

Operator

question D.A. next of comes from Our Kelleher Davidson. Mark

Your open. line is

Mark Kelleher

Great. taking questions. the Thanks for

some back too different gross a Before about talk Brocades, from Can margin, we about gross little ago of that was bit. to product get just margins, impact on margin. product with we I categories, within talk quarters want a far the away an headwinds to the switch go gross just stand you issue core to there you some of that? Can couple where mix as

Ed Meyercord

the gross really portfolios. seeing the Yes acquired what at we we’re were margins pleased in of

a center SRA assets lot we was than field ago, we when from first you less recall, year discounting in heavy the data the a Brocade, were at gross had think margins you’ll I on If anticipated. and the there look brought we

margin pleased mentioned come in I there. really we’ve that the comments Agile gross Center see and we’re our to products. my updated recovery we’ve of Data So out

new our And platform. out X with interconnect. the routers. came these And success SLX of We’ve at migrating stages layer Center Data customers we exchange, with early so yet we’re seen border to

So as cases build of move portfolio, new but we product use older from there the platform and SLX. out to the drag for a the we SLX there’s still somewhat as

revenue, on business know lines. quarterly fabric. that bright as see expectations The we’re looking was we’re acquisition campus to a going Avaya rate, and as up reporting margin with has and those improvement percentage campus those solution, entity, technically our been We’re product full XX and Avaya along over I up their that spot. run an now continued a not are same a from margins revenue But our points. more Fabric,

So, on a from side, pipeline. cross-sell driver And feeling of really very as that good that’s that the well. standpoint, we’re

these product across So what’s the margins portfolio going in the improved really gross and on is to the us acquisitions the improved to take XX% QX. margins margin

Mark Kelleher

mentioned Okay. That’s you this helpful. the And the was a over doing? K-XX? approaching wireless the thought that K-XX side, still big wireless be how’s a There’s some on on refresh that headwind, is headwind that we might cycle

Ed Meyercord

you we’re cycle. spending a expecting at do last the next the vertical The Yes. was is wireless with year E-rate rather the cycle vertical we end E-rate This and is and opposite, we’ll us for may The year the a E-rate. is up is, education find higher K-XX interestingly March weak sensitive out a it us and education. round. in the stronger And as for because way was us up, recall, to overall, how for strength of of

K-XX largely that weakness a is to March. goes the last cycle funding So result in still back of that

portfolio We as our percentage up. are product that approaching XX% total Wireless of to sales. our expecting a total pick of is

ripe density dense do Wi-Fi about you care. X, very where for are these of you So, wireless stadium, as to Wi-Fi a think we be have about have pointed out you well, benefits. lot doing customers, when of lot and customers These significant is environments, are that have very and a you we going and think

cannibalization maybe from little the existing pre-orders Wi-Fi product lines. line, that have for a We

are As to able any we not it AX the of look to we be at ship products. QX, going

land QX ship those the likely April and pipeline that will So QX. see because put forecast, in can’t despite we we bookings in revenue today, and products timeframe our that in

Mark Kelleher

I’ll and last then see Okay. the floor. And question,

mentioned thing How do Huawei, an help you for one against that’s impact You Is think of that’s well a is Huawei that something you in or kind Europe. going to quarters? were you quarter that? doing several much of

Ed Meyercord

very and It’s involved has Obviously the had enterprise. XG, with auto that manufacturer. had that with lot with was the the with much the talked the a that about that of we go adamant that But hunt manufacturer lower most security. seen us Huawei in capabilities Fabric procurement a Fabric been allowed And sough segmentation do win Huawei Huawei, security hard Huawei around software to and against the of I price. that was was news our less really it wanted a still and you’ve our of to and with and our to win, is that A tell. to customer. large

while alive networking just is is, we they’re to to in in people to don’t point the we creates competitive very still it choice vendor. starting a for to about us, there it down, to that we and that if think of is situation are out. think we an opportunity how are out customers when this considering we exactly their trickle space, know do play So some But is and know going it much enterprise that

it I Mark. quantify So you can’t really for

Mark Kelleher

Thanks. right. All

Ed Meyercord

you. Thank

Operator

Schwab Our Craig-Hallum. next Christian question from of comes

is Your line open.

Christian Schwab

for follow on Thanks just education. comments there in Great. to taking I your up want call. on my E-rate

in come for after money something taking of XXXX the bidding you’re back requests year is since can guys X. fiscal year know charts three positioned as and again, XXXX part, we’re that you’re the a as those at what as about almost funding, far fiscal same finally force days. won out transitioning the that confused. know come over took get as further should You in have the time off years haven’t already sales initiative you far fiscal XX or Are there? the which for next it all off as I’m strongly accelerate because as XXX In number I’m initial more Category who that of to business. again, back year, we schools seen forms, you X surprised that not $XXX not guys optimistic million Wi-Fi of slightly seeing worth you

Ed Meyercord

we’re Hey wouldn’t I I impression say have Christian. say -- that should we that not would that and did. No we left if

talking talking and who can And quite and in as you cycle, E-Rate QX, we’re current in there about E-Rate, of don’t there of we year QX, obviously people back. the find the are are last QX. impact lot a and this come at QX, we’ll but you dollars are guidance, know we’re As is point impact expecting a in left. funding out lot the revenue you the we When out expect about a point but of revenue

are of are with We team. vertical than positioned to ever been anything, if -- probably we’ve advantage focus better take a we E-Rate

-- involved. the And much is this be very something much in we’re we’re and so very to this is going that hunt,

business smaller Our E-Rate and weaker season overall a I we year. E-Rate really is a point, expecting has of the a that portion much is this think are up But result business, a across the so become last year. cycle a it’s weakness lot the of more comment, your makes board bigger the to E-Rate diversified good now

where QX is are March teams news affect know active it up. very very to in us for coming Our and and will our our busy, place, QX you this going and be

Christian Schwab

this board Right. And benefited then, and switch more XXXX, a do you on last you competitive broad and access maybe technology time point as your in across cycle, fiscal as Wi-Fi the have year didn’t as platform.

points? win based you do is wins this as and look working, securing that well switch think the to team to So both access more opportunities as and is you as opportunity wireless the your broad opportunity in

Ed Meyercord

Yes. I would say that.

have as The environment. you more I particularly K-XX popular mention also know in And is in is becoming would didn’t other cloud management thing platform. we distributed cloud a

remote it cloud glass as a solution, site pane premise a as managed to glass both have. pane have of for single don’t and an with that single unique on our relates offering our well that as of we managing So competitors solution

when – So in we a and feature for there’s we’re pretty out think that’s market. Extreme a the differentiating that there powerful is there

As that we’re where is that’s focus on dollars to applied you and differentiating our software to software a that the Extreme with and aren’t item software, know RFPs. E-Rate so customers working their lead that in to

Christian Schwab

Great.

have questions. Now, don’t any other Thank I you.

Ed Meyercord

Christian. Thanks,

Operator

next Paul of [Operator Our Instructions] from question Cowen. Silverstein comes

open. Your line is

Paul Silverstein

all wireless of some just clarifications, win. First

quarter? give the $XX product of quarter that math million make you what The it’s can would XX% win if I last ago and you revenue right. As said, about in approaching the total quarter, the us wireless was year did it

Ed Meyercord

to probably going that’s say; year a number. a Again, last quarter be not to XX%. ago to is going closer probably precise I’m quarter And XX%. is the

think a exact we number, is which but less more we off I follow can get the giving you accurate. I’m line with range when up or

Paul Silverstein

us, is can mentioned quantify K-XX small? can how you I small, know right. give but you All you

Ed Meyercord

Well K-XX higher the it us for you the is given so It now know higher been had depends historically, much smaller K-XX is If part us education, on of for higher in education growth that cycle. E-Rate higher ed. that ed than vertical. than has we’ve funding and is

look we quarter, the perspective, going at I bookings have revenue data for if or X% if exposure ballpark. So from more that really it’s second be less E-Rate in and overall, of a like to

Paul Silverstein

it. Got

on strengths, given what comments point your and I the the it’s visibility what to the are reflect what that range? that not pretty about early, Let appropriately line, assume broad that does in extent does spread the extent the there me especially you broad I is being EPS pretty but which move guidance quarter, levers? at accounts reflect the on What variables To through this when conservative? in is key know case? the

Ed Meyercord

would add of I’ll a I of couple answer. wants supplement Rémi points the and he let level if to, kind high in chime

would increase If have look our structure, we the X We QX. have X operating calendar this change. other in are put pull seasonal. took still pricing quite for every different your year, and expense at into health lower would in of operating bit higher that obviously did we were million, that out that start expenses million. that on in year QX If and because be that we They we we we all, have a restart we’ve of accounts at it reset just the buying up that but automatically to beaten clock OpEx. -- First have quantify an X that buying QX and create if QX, people of that expenses for quarter that a advantage care we for going about without knew million and Extreme that QX, number taken pull they other in OpEx taxes the payroll makes

of that a and a operating the there, at increase will of you’re number, kind expense that then seasonal So looking you’re also comparative out just revenue you’re at the looking doing have right chute effect. headwind, if

Obviously, about we it the us. timer, for related other talked a comment it does is shift. one risk mitigate X% I’ll as but that make that’s the The manufacturing of headwind the to China

but the right of So impact it’s to a thing do, near-term us there’s for that shift.

obviously, we’ve path on second So him a to the or add in want quarter a on row have the guidance. is CFO We way new chime in This obviously that the we and continue and met and going trend. that exceeded call I’m some let to that commentary. on

in guidance I’ll set to that’s want in we add that our Rémi how we that chime mind, want you high of sure a confidence we have anything. of make numbers And let hitting to guidance. So if and and those degree set we with

Paul Silverstein

while reset know chimes apparently a you in, calendar sounds cited Everything for make pretty that or Rémi that’s me want correctly. to sure I you’ve not comments the Before The just assume mystery good understood in that what a I pull-in your identified, apparently. is. to OpEx resets I like, have guys $X you million QX, feel should

you that fine you what accounts spread. I’m but understand if that being what appropriately -- things into. So -- trying visibility visibility conservative that trying out I’m and -- just argumentative it accounts, such you variables but the have to good – the pointing that’s are you for of degree into that’s is things I’m don’t are other have identified to than not what those be

Ed Meyercord

we and as quarter where June. visibility And say fall Yes. then March as into been The know historically, you from a don’t significant is seasonality. item falloff into that’s the March I And from is as natural a step have that up the of one much didn’t to the fairly I what December would piece mention there’s off.

And Now, the for I forecast pipeline we’re year that obviously using the opportunities. of do our on a of what our accurate this the and pipeline I terms and missing pipeline would had have say significantly in year is $X more million. said, a versus on we’re business we that that on the our our field, say different. have enabling field enforcing historically will and tools that and is building we of done we’ve of that in seasonality lot That last confidence in work opportunities

and flat and that a to outgrow number seasonality. we’re outpace that We’re assuming still going calling

Rémi Thomas

we three the and Hey that I spent could at that add, Paul, based a Obviously, we bit see. if quite team just drivers. really on of Ed revenue we mentioned time pipe guidance a the as preparing looked

wide. quite operating which, have And a of And a spent is we then call aspect expenses. we for see $XX as points of for mentioned as three, bit range multiply of And spent have million time two see we range a you time positive on the it we as you on the range million as up expense you much on the percentage as, so the a of end EPS. when the the drivers, and gross the operating math lot as pretty margin And $X when with gross that you revenue, margin, you let’s on the well tariffs. impact

with So, a wide just to one is three math applied drivers range.

to number be in The We will our the an a will recs operating know be the on quarter merit the on second people what your on is and impact come of people initial to expenses. operating on our built going of on we that hire We company, as quickly every board, compensation. do how a expenses. point, based response, have is mentioned impact which and one, will haven’t

something understand to a EPS. range keep in OpEx revenue margin times to times results that’s in mind gross so this range why in And for

Paul Silverstein

I that math. get understand I the concept.

in it account that last high to end? On end? the gross it me would percentage the What spread? Let are question you on point drive particular, two go what to the low one variables this. cause to ask margin, just that for What would

Rémi Thomas

I really keep say, in There’s five to factors would mind.

positive, the the the offset this discounts, price we’re to benefit in also our that’s regions into kind of the effective given for list increase suppliers. And expected rate you’ve higher providing is list quarter to and is, year going which of got counting in the typically And on timing QX price, EMEA quarter. we initial kick one that quarter APAC. in factor two acceptance that, with be On of full going which renegotiate QX. procurements then, was by of And comes the every negotiations, this higher

we’re EMEA production last higher the until manufacturing fully is Taiwan haven’t ramps mentioned two China. had up. ones, from that the And where the gross aspect the shift to a We strong tends of one-time we be drive don’t cost we of to positive one that as in and Taiwan from That’s we X.X% expect are region EMEA The those strong a to negative low a to quarter we when things generate China. that very EMEA geo production quarter mix, another don’t margins. of QX up. compared gross margin a be getting the expect the that would Ed manufacturing that So, And from benefit financial receive that impact move this to is in cost quarter. to mentioned

are you obviously that isolate -- I others, your are there’s would the the build as So, those but those five model.

Paul Silverstein

manufacturing two X.X% fix timing. it you a the because those But of the pretty are only right. like have about sounds hit or All and three true variables good

variable that would a that spread. not not point to argumentative. into two that’s So trying be don’t factor I Again, think

Just trying to understand.

Ed Meyercord

is and rate Taiwan. There’s two There’s expenses, will and pieces. in will, manufacturing run There’s sort have be for in in manufacturing, the one-time Taiwan running forward. resetting once the up cost you quarter, expensed if we also which setting going the of increased

Taiwan XX% goods expense. there’s exempt and at be a negative quarter So, impact have expecting effect that this the come of are we’ll X% positive from then to tariff having the but a a effect manufactured we’re one-time QX higher in that

Paul Silverstein

All take right. of the I’ll offline. rest those

perspective? is shortages, component costs. there? to heard reflects on question, say was What’s in generic not on thought that hoping I I’m was or there me labor you I get those the costs manufacture more Let a expect Are Taiwan. continue? it’s to more I impact component labor statement. or on costs had something cost that. one else component that particular that ask recognize something on it I from if we’ve if a you I having shortages. sure going expensive I more to certain if may. quarter you have fact higher mostly adverse and insight that you get reflects but an the going that assume is I’m last to purely

Ed Meyercord

are of lot a of would we’ve past portfolio component we’re a are then refreshing a years, I several of there seen older. that memory the like more that’s costs legacy of because are our issue. Well, product process portfolio. different and big the And piece say that in our over And things in products

raised up historically, we’ve the so, And And over time. for never have price. gone components prices

that years. increase We we have increases haven’t that few products. our contemplated the in component the should the price literally the list And globally account U.S., price we as decided we happened take we raised over and last on raise should price into

a rates past over more and of strategy And happened price it’s raise regular but few all will you’ll we rest at once I and to and, regular increase So years. world price is more what’s U.S. the a do price going the this basis. of think, going recover raise forward, we’re if where see us reset a have do what let’s decision on it, at we’ll to separate do

Paul Silverstein

All right.

ask me I’m Was more? there you sorry. Let --

Ed Meyercord

done. I we hadn’t said consistent Well what just just do. it’s It’s with that our competitors something

that as opportunity at look I us. So an for

Paul Silverstein

return one And region. in apologies, to what’s it. going last but U.S. question. to I the on want My Got

factor consolidation more expecting completed channel On more what look a weakness. of mentioned you’ve Let growth the way. once consolidation? growth question You would importantly, and other insight? cited was of distribution are me Can normalized the give U.S. Or, one there terms ask U.S. the your you alternatively, the in like? this you what basis, for you

Ed Meyercord

when that, in particularly, obviously, is we’re higher the I you than saying and Americas, a quarter, one. book-to-bill this can -- perspective what a from tell have we that Well, bookings ratio

time. is chimed Christian a we because a drag This bookings that to of expect he and weak talked E-Rate over about. encouraged to we’re in been E-Rate. it bookings if look this -- year, what we year on And level E-Rate obviously by seeing should revenue in out as a what’s from going on perspective. the We’re story numbers seeing year. at our a about has we’re sales with going leading be indicator, last talked as our different season we’re

being think a a Americas so, than should driver being growth it to to bit. quite contributor and I rather that’s And help the a and a flip going out drag,

healthcare of We’re higher education in of verticals. in really encouraged, in saw transportation targeted verticals, grew, by ed. what because Paul overall grew, grew Because strength logistics our despite we grew, each across our the our weakness Government retail K-XX grew. manufacturing grew,

the And the and vertical where horizontal field, true all growth. seeing addition to the that’s we’re in focusing, our well. solution, So, solutions areas delivering Americas in we’re as and targeting

Paul Silverstein

Ed, the in it you X% mentioned E-Rate that quarter. exposure was What year was a ago?

Ed Meyercord

A year twice have been would ago, that. it

Paul Silverstein

from it million delta? in delta? the looks to about of $XX so QX that Is million back year million million to it $XX $X to envelope, business like E-Rate and math? million $X $X-ish ago was million $X went the your a a So

Ed Meyercord

You’re doing math, good Paul.

Paul Silverstein

got I’ll pass desk. on. guys. abacus Thanks, on an I’ve right. All it my

Ed Meyercord

Okay, thanks.

Operator

of from next Our Henderson question a is follow-up Needham. Alex

open. is line Your

Alex Henderson

Thanks. Great.

things to So a couple of I talk about. wanted

First lot a cash. of threw one, you up

bought back stock. million You $XX in

available with you debt split cash how these think $XX some flow the acquisitions. to on you about Can about down your put say repurchases cash share associated talk we that -- quarter, should a have between bias You working versus pull in debt with million flow?

Ed Meyercord

a our under perspective, policy bank facility, allocation million capital we’re to $XX a year. buy allowed down From

$XX second So the quarter. million we in spent

to last six it we the have take opportunistic look to and $XX to for of advantage means that. million months; spend. have we be And We

balance opportunities, keeping the continue undervalued and at part But year. and potential powder in our look we M&A, for the there. to going we’re at M&A the second half We as dry that most being of to with look repurchases share will stock

Alex Henderson

that a is we’re So year fiscal just calendar to talking be that about? a clear, or year

Ed Meyercord

year. Fiscal

Alex Henderson

Okay.

$XX or to available then million million another end million So you year? $XX and you reset have between and the June each now another having – of somewhat $XX

Ed Meyercord

Yes, it does.

you million if and our million cash. $XX have million $XXX look of we another have of we at debt, $XXX So cash,

debt net So, of $XX million today.

cash We’re flow. generating positive

but kind to because at that going of say consider. predisposed So, we it’s to what I’m are toward we’re comment this point, stock in buying at intentions accretive. liberty not exactly on our I’d believe we’re it’s something

Alex Henderson

Yes. The mechanics Thanks. help.

question. Second

increased obviously the of price. price net volume the you impact product. So it There’s trim was all? to price it in do If you X%, it’s it increase think think or the did any revenues? X%, trim growth Did is X% you it do increase, immaterial? What price a elasticity at

Ed Meyercord

have a coming that the get was the quarter, from more guess margin it the over offset. that see the it quarter perspective. we a QX, and We we say would next that’s although neutral cost believe net should second positive do I in full in Alex. incrementally I benefit

Alex Henderson

right. All

just again. So, it let me say

impact it the As increases? multi-quarter we result that period, of as to volumes you is about negative a think some for think a do there price

Ed Meyercord

I would more it’s and discounting. it’s about less I say say about volumes would

Alex Henderson

mean the pricing I going net up. I adjustment. assume is

have or impact that So, does volumes not? an on

Ed Meyercord

pipeline. see answer that. pricing current and because XX% familiar on We on fourth this of have our traction don’t is see with it. or term. In on the without we we the U.S., volume question everyone doesn’t It is But is on effect move a customers in yes, in We customers. expecting see over longer increase the We quarter. to price a tariffs. the the with can’t based We who those do. do agreements a price what’s contractual increase of very benefit on everyone’s benefit have our price see And what an going having frame affecting your

Alex Henderson

So, the in some new had the out. out. of on your requesting provider fourth But pipeline. that you you’ve you that the the assume also of the feature in of that’s called had I it several feature going quarter timeline seeing in I are were introduce fourth you were calendar adjustments? you the wireless assume that’s acceptance you because improvement that those piece the with What’s supposed data center service times in significant some E-Rate quarter. called acceptance set said And they that that in in piece? because to what’s the that of for

Ed Meyercord

a rebound we strong saw, hiring about the space been that that in we’re about and in we’re we’ve and customer larger provider that building opportunities service we’re of we team and service quarter some customer as mentioned, I have excited provider. in this the excited opportunities, Well

half at fiscal the So, much see a was look feature stronger challenge XXXX, at a look we that the first position second whereas would half a when we as in are we that, say we a I us XXXX. from rebound of and for calendar of perspective,

Alex Henderson

you’ve I current So, look the maybe. quarter numbers got little the down midpoint. at year-over-year, guidance if to at that is Flat down bit roughly a

a some us with direction? price I we all in, give June be back of we kicking of I as are out, the a wireless quarter? and out period as be sense service to it E-Rate in in, kicking with that full into or kicking just give in more could just acquisition we looking the meaningful accruing, know benefits rate you guidance impacts the to with quarter with growth than So, one fiscal don’t the flat the XXXX getting at in, provider Should get hand, falling the quarter, thinking you want up, flat? but down, about should

Ed Meyercord

quarter would And a guidance, $X we our come you think $X have say. would quarter. this take out, to One things I had two I I strong you in. But for adjust really that have Alex, had million. still is the million we

expectation of we’re and have were QX. that terms setting $X guiding been how is in expectations, how would we million In our

year’s slightly getting it adjust and to you that, closer when flat So, is up number. last you’re to

full have changed the year We not guidance here.

I strong can’t number. an So, and on very provide we are comment QX. expecting really exact a to try

Alex Henderson

the closing But can the actually why to you given explain down acquisition timing? are numbers flat

Ed Meyercord

we made of overall, bit. decision our to the the remember, data the If reset saw June, you center down reset. and we business volumes distributors At and we a consolidate quite we end business

though may stronger we were we sequentially, point we’re in we So, back position. we’re we to a And be are lower back getting at much a to getting even starting where were. so where growing

Alex Henderson

that’s exactly at. I get Well, to was what Right. trying

absorbing good, adds variables December When here, the or to a that SLX that And for there’s two have the were amount and back the line business and the why the it quarter, growing that which of realignment. obviously distribution from say, important of and the for, base normalized do quarter flat? hey, customers the consolidation number? critically like, accept data June an center time It the So, time the feature time done reason it. and in that waiting launched strength that sounds looks of in given that product you’re the data we the March are this accept I’ll off get is they feature center gets it to is you

Ed Meyercord

Well, business has we is center That for $XXX and data stabilized expectations reset $XXX run million business the million to rate. that growing.

terms back we’re $XXX we revenue in projecting but If be XXXX -- the And full and and quarter a we where go stronger will at what as approximately we’re to the portfolio comment into So starting. the look across I this make about of had from now pivot being see part we growth foundation continue. where granted, a as far XXXX, it growth why entire as $X of and wasn’t million to that we’re much the portfolio. in we we that expect of acquisitions And that’s over billion. and that’s I fiscal fiscal

Alex Henderson

sounds think in you’re ahead of million trajectory a million million quarters? March been hit it $XX talking distributors quarter you’ve stabilized. June Should still the per million It that hit that. $XX being $X and $XX thinking on until like the from about be to to we a I about

Ed Meyercord

say At this point almost we’re Alex, done. I’d

the be smaller in I year. in half And are the a terms would bit effect probably the in would numbers what second the of quarters so little of say the

Alex Henderson

Great.

into out. the suggest first XXXX, be fall the fiscal results you period, fiscal half fiscal seasonality. the That of in versus in those So Is September/December you better traditional of would half or should correct? XXXX that when get seeing XXXX back that

Ed Meyercord

Absolutely.

Alex Henderson

Thank I needed. Okay. you. Great. That’s what

Ed Meyercord

Okay.

Rémi Thomas

Thanks, Alex.

Ed Meyercord

Thank you.

Operator

like no for remarks. questions. over to Meyercord closing call I’d back are the There turn Ed further to any

Ed Meyercord

the today I’d and employees for thank Okay. visible. for well The Extreme joining job who like us to all done. is Well, a in everybody listening were progress

XX. about our long-term model, February forward business having to York a Exchange Day vision, at we’re outlook that looking New our the We’re detailed in and etcetera sharing the portfolio, on Investor at more NASDAQ

encourage everyone would I consider So, please attending. to

give about the why look going of second think a I it’s progress year. we’re we’re to at that half and this making great excited you the

terms terms our of coming We’re and exciting also the three enterprise having It’s with a solutions we’re at I as user pillars. to in and look out what in that in conference people of well. across would vision, expect pretty May portfolio the entire

So, thank you great all a and day. participating for have

Operator

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

Extreme Networks (EXTR) 29 Jan 192019 Q2 Earnings call transcript