Q2 2020 Earnings Call
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Network Q2 fiscal year 20, <unk> financial results call.
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Hand, the call over the same Kovler. Please go ahead.
Thank you Michelle welcome to the extreme networks earnings Conference second quarter fiscal 2020 earnings Conference call.
I'm, Stan Kovler, Vice President of corporate strategy in Investor Relations with me today or extreme networks, President and CEO , Ed Meyercord and CFO Remy Tomorrow.
We just distributed a press release and filed an 8-K detailing extreme networks second quarter fiscal 2020 financial results.
For your convenience a copy of the press release, which includes our GAAP to non-GAAP reconciliations in our financial results presentation are both available in the Investor Relations section of our website at extreme networks Dot com.
I would like to remind you that during today's call. Our discussion may include forward looking statements about extreme networks future business financial and operational results growth expectations and strategies acquired technologies products.
Reasons pricing changes to our supply chain.
In fact of tariffs acquisition and integration of Aerohive networks and digital transformation initiatives.
We caution you not to put undue reliance on these forward looking statements. They involve risks and uncertainties that can cause actual results.
Could differ materially from those anticipated by these statements.
As described in our risk factors in our 10-K reports.
For the period ending June Thirtyth 2019 filed with the FCC.
Any forward looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them, except as required by law.
Now I will talk to turn the call over to extreme networks, President and CEO Ed Meyercord.
Thank you Stan and thank you all for joining us this morning.
Today, we announced Q2 non-GAAP results that highlights the P.S. 13 cents inline with our expectations gross margins of 60% the highest an extreme history in line with our fiscal 20 goal and operating margin of 7% up both year over year and quarter over quarter.
Revenue of 267.5 billion was short of our guide and grew 6% year over year as a result to the Aerohive acquisition.
Key highlights during the quarter were higher than expected growth in our cloud business significant advances with major industry partners that can drive organic growth in the second half of calendar 2020.
The repurchase of 4.2 million shares of our stock.
Production of expenses better than plan and trending lower.
Delivery of all <unk> merger integration targets on schedule with the completion date of April six on track.
And growth of our cloud I, Q application, managing 24% more devices quarter over quarter traffic up 33% quarter over quarter and doubled the number of connected devices to the cloud versus last quarter.
Q2 results were once again driven by strength in our cloud managed wireless Lan business with revenue of 41.8 million up 9.8% year over year end up 11.6% quarter over quarter on a pro forma basis.
We also recovered in our EMEA business, we're product revenue grew 25% quarter over quarter, but still faced a difficult year over year comps grew just 3% year over year, including the impact of the Aerohive acquisition.
Headwinds in our Dach region, and UK have diminished and we're seeing growth driven by core extreme revenue.
I also want to highlight the progress we made in executing our strategy and key developments going forward.
Our acquisitions, and resulting scale and given its brand recognition and built franchise value in the enterprise sector.
Hey, extreme is better positioned than ever before for new growth opportunities given our end to end product portfolio. The most advanced cloud platform in the industry network automation software firm I O T wireless edge to data center, our status as a leader in the Gartner Magic quadrant I never want position in service and our law.
Arch base of 50000 customers.
Key customer wins during the quarter included several large scale cross sell wins like Palm Beach County schools, the 10th largest school district in the country that deployed our switching a management software alongside legacy Aerohive Wi Fi now rebranded as extreme cloud I Q.
A major fast food restaurant chain that deployed our switching alongside cloud I Q.
We also had several large scale sports and entertainment wins during the quarter. All at all we had 18 million dollar or greater deals during the quarter up from 14 in Q1.
Earlier this calendar year, we won a major U.S. stock exchange they deployed our wireless Lan solutions for its high performance network to support what are the largest trading operations in the world. The requirements were rigorous and the launch has been very successful.
And our retail vertical we announce availability of our retail select cloud platform uniquely designed for retail customers and showcased at the National Retail Federation Conference in New York City in January .
In addition to the networking benefits of our cloud platform that Leverages machine learning, we developed a unique interface to deliver end user data such as dwell times Welty information and cyclo that supports marketing and sales initiatives to drive better business outcomes.
During Q2, our E rate K 12 business more than doubled on a year over year basis due to easy comps. However delays in E rate funding letters push several opportunities to the back half a year.
In the stadium vertical our success is highlighted by the following this weekend extreme will drive the most connected event in stadium history for Super Bowl 54 at hard Rock Stadium.
Also our stadium venue team broke into a new professional sports League that has created significant pipeline.
And we're seeing our first meaningful pipeline build in international markets.
Data Center, we introduced extreme fabric automation software designed to augment enterprise I T teams and reduce human error. The solution automatically manages the validation testing it operation of datacenter fabric networks, while providing critically important network reliability and resiliency.
Extreme also announced availability of two new high performance switches embedded with guests Bcms RSL ex 91, 50 leaf and I felt like Sninety 250 spine switch that helped drive record at select sales.
We have additional product launches Nflx plan for the second half of fiscal 20.
We have significant opportunities aimed at the service provider of federal verticals.
In Q2, new product revenue at our edge switching portfolio nearly doubled from Q1 and continues to grow for the third straight quarter as we refresh our portfolio.
In core aggregation switching a revenue from products introduced in our fiscal Q4, 19 grew nearly 50% quarter over quarter on expanded use cases within our customer base.
We are on track to rollout our new state of the art licensing platform. In April we are targeting July 1st to launch for wireless and Wired management capabilities from cloud I Q.
Addition to our co pilot automation software suite. This platform will enable us to simplify licensing for our cloud SaaS solutions and position us for cloud growth in the second half of calendar 2020.
Beyond our traditional enterprise business, we're well positioned for Fiveg.
A significant industry players, we have a large scale OEM opportunity for Fiveg networks, and a service provider opportune opportunity for their assurance platform.
Either which could add several percentage points of growth to our topline.
Beyond these new opportunities, we're leveraging our unique solution linking why by six to Fiveg networks and public venues and attracting ecosystem partners that will create new opportunities.
Today, we announced leadership changes and our sales and go to market organization for the third quarter in a row, we have not attain sales targets and taken down our guide.
This morning, we announced in the separate filing that Bob Golf is leaving his role as Chief revenue Officer.
Bob has been a committed leader who is critical and getting us to over 1 billion in revenue. We appreciate all of his efforts and we thank him for his dedication and hard work and wish him the best.
In July 2019, we restructured our sales teams in the Americas region to better cover our enterprise and slight accounts.
This created disruption that impacted near term results, but with new roles now filled and new sales leadership in the Americas, we're positioned to drive long term growth and improved productivity.
In addition, we're streamlining the reporting structure of our field teams to better align per customer and partner growth opportunities. We have consolidated leadership under Pete do little in the Americas, who joined the company last quarter.
We merge the AMEA and he P.J.C. regions.
Into the new International sales Division under the leadership of John Morrison.
And our channel.
Organization now reports to these geo leads.
As we turn the corner in the second half of calendar 2020, we expect this to drive down sales and marketing expense as a percentage of revenue from 27% today.
Extreme has been on a journey over the past five years to transform our business.
First we refocused on enterprise differentiating with software and service.
Then we were successful in scaling to over 1 billion in revenue and substantially expanded the breadth of our solutions.
And now we have a unique opportunity to lead the enterprise migration to cloud networking with our cloud I Q application.
Over this time, we significantly improved our gross margins and invested in our own digital transformation during fiscal 19 to drive automation of internal processes.
As we advance our strategy to transition our business to subscription oriented cloud solutions, we will change the mix of our revenue to a more recurring basis.
In summary, with the integration progress product and engineering efforts underway.
And market position that we've established the go to market pivot is the final step in our transformational journey that began in 2015.
The growth of the cloud networking market from 2.6 billion in 2019 to over 7 billion by 2023. According to I guess creates a unique white space opportunity for us to leverage our capabilities gain share on this developing segment of the enterprise networking market.
We feel good about Q4, given historical seasonality ongoing recovery in EMEA and the way our Q4 pipeline is shaping up both year over year and quarter over quarter for core extreme.
There are also additional partnership developments that will be starting up in the next three to six months with new reseller relationships and large opportunities under development.
We remain committed to our low single digit organic revenue growth now believe it will happen in the second half of calendar 20, along with our targeted 15% non-GAAP operating margin.
We now expect to exit fiscal 20 with operating margins in the 12% to 13% range and with that I'll turn the call over to our CFO Remy Tomas.
Thanks, Ed.
Noted our revenues of $267.5 million grew 6% year over year, and 5% quarter over quarter slightly below our guidance range.
non-GAAP earnings per share with 13 cents inline with our guidance as the gross margin of 60% and the tight control of operating expenses helped offset the revenue shortfall.
Our cloud managed wireless Lan business accounted for $42 million in revenue up 10% year over year, and 12% quarter over quarter. However, legacy extreme only revenue of $226 million fell 11% year over year, and 12% quarter over quarter on Isnt.
Three large deals that experience longer sales cycle related to our expectations.
Our total product revenue of $195 million was flat year over year.
3% quarter over quarter out total product book to Bill ratio, including Aerohive was over one.
We were 48% complete with our product refresh as of the December quarter and expect to be over 70% compete by the March quarter with a targeted completion time during the September quarter.
Total services revenue of $77 million grew 22% year over year, and 9% quarter over quarter total services book to Bill ratio, including cloud wireless Lan was also above one.
Oh annualized run rate of Aerohive subscription and services revenue, excluding the impact of the deferred revenue haircut was $59 million in Q2 up from 57 million in Q1, and the 53 million Aerohive recognized in its June quarter.
Subscription and services bookings for Aerohive, 14% on a full quarter like for like basis.
On a pro forma basis recurring revenue accounted for 28% of total company revenue in Q2 similar to Q1.
During the quarter, the Americas contributed 51% to total revenue EMEA, 41% and APAC close out the remaining amounts.
non-GAAP gross margin was 60% compared to 58.2% in the year grew quarter and 59.9% in Q1.
The sequential improvement was attributable to higher contribution from services revenue on the core extreme side.
Addition, gross margin also benefited from a full quarters worth of their high revenue, which carries a three to four points higher gross margin contribution versus core extreme.
Finally, we estimate that the net impact of care was a negative 150 basis points up from 80 basis point last quarter, owing to the addition of list for a 15% carats implemented last quarter on wireless access points and optics.
Q2, non-GAAP operating expenses came in at 136.3 million below the lowering of our guidance.
Decreased from 137.2 million in Q1, despite a full quarter of Aerohive expenses.
The sequential change in non-GAAP operating expense was mainly due to lower core extreme R&D and GE any expenses as the impact of our merger integration and restructuring plans flowed through the PNM.
This resulted in an operating margin of 9% above the midpoint of guidance range of 7.8 to 9.9 systems.
Free cash flow was 23.6 million recovering from use of cash of 5.4 million in Q1 and free cash flow of 17.9 million into your go quarter.
Total cash and equivalents balance at the end of Q2 was $140.4 million.
Down from 161 1 million at the end of Q1.
Adjusted for $30 million worth of share buybacks, our cash balance would have grown to 170.4 million.
Net debt of $234.9 million increase from 218.9 million last quarter as a result of buybacks.
Upset by free cash flow generation.
DS So a 55 days remained flat with Q1 and rose just two days from the year ago quarter.
Cash conversion cycle stood at 69 days down from 73 days in Q1, and 78 days in the year ago quarter.
Our inventory balance of $79.7 million fell 2.7 million from Q1, and increased 21.4 million from the year ago quarter.
The year over year, increasing inventory largely reflects advanced purchases ahead of writing tariffs new products and to a lesser extent. The addition of Aerohive networks inventory.
Now turning to guidance.
We expect total Q3 revenue to be in the range of $255 million to $265 million or 4% year over year increase and 3% quarter over quarter decline at the midpoint.
Besides the normal seasonal pattern about business in the March quarter. This outlook reflects limited near term visibility to you want to public sector funding.
Pockets of weakness in the service provider and retail verticals in the U.S.
And our outlook in the Asia Pacific region, offset by continued recovery in EMEA.
Q4 gross margin is anticipated to be in the range of 56% to 58% on a GAAP basis.
69.1% to 61.1% on the non-GAAP basis.
We estimate that tariffs will have a slightly lower impact than in Q2, as we begin begin to replenish access point and optic products at a lower 7.5% tired later in the quarter.
Q3 operating expenses are expected to be in the range of 147.32 $154.1 million on a GAAP basis.
And 129.32 $135.3 million on a non-GAAP basis.
We expect the sequential <expletive> decreasing non-GAAP operating expense to come from the further tightening of our R&D and sales and marketing expenses combined with the next phase of Aerohive synergies.
Q3, GAAP earnings are expected to be in the range of a net loss of $12.8 million to $8.6 million or a loss of 11 to seven cents per share.
non-GAAP net income is expected to be in the range of $13.1 million to $18.3 million or 11 15 cents per diluted share.
In Q3, we expect average shares outstanding to be approximately 119.4 million on a GAAP basis.
And 122.6 million on a non-GAAP basis with that I will now turn it over to the operator to begin the question and answer session.
As a reminder to ask a question you would need to press star one on your telephone Swiss draw. Your question press the pound key please standby, while the compiled the Q and they roster.
Our first question comes from Alex Henderson of Needham Your line is open.
Great. Thank you very much for the let me ask question here so.
Could you talk a little bit about the competitive landscape I know Cisco, obviously, we can quite a bit.
In their October quarter, and they guided to pretty soft outlook for the January quarter has there been any change in their competitive action in the marketplace today.
Addressed.
Pricing downwards in any way that would impact too.
And have they changed their targeting in terms of moving downstream to smaller targets.
And as any change in that world.
Hey, Alex it's Ed.
Yeah, I think its keep in mind that yeah, we're always competing with Cisco. So there are largest competitor and if you look at where we play they probably have 60% market share. So.
Even if it.
The lower end or the medium enterprise, we compete with Cisco.
Everyday all around the world so.
That's not a.
I guess it wouldn't say we've seen anything unusual we know that there is some pressure.
Maybe we see a little more aggressive pricing and discounting in certain spots in certain markets.
For Us I would say, it's it's business as usual.
So no change in behavior out of them. This is what you're implying now it's a competitive market and we're always going toe to toe with them.
All around the world so.
Yes, it's competitive but I wouldn't say that we've seen any.
Any any change worse.
You know worth noting.
So I mean, I think you guys did a pretty good job of Telegraphing that the weak conditions are going into the quarter I I guess I'm not that surprised by the some softness in the topline.
Has there been any changes we've exited.
Here and the great deal has been.
Enacted so that.
Confidence, maybe coming back a little bit and in the broader world.
In a way that might help your.
Pipeline improve any evidence of that happening.
Yeah, we commented on EMEA and.
A lot of it what happened between the us in China affected global trade and it affected customers, particularly like manufacturing customers in the German market and the Dach region.
And we're seeing that come back and our teams there are calling for.
Growth and they see strength in their markets.
So from that standpoint.
I think we feel we feel good about that I'll also comment on the fact that.
Internally I mentioned in my comments, the fact that in.
July we restructured our go to market, we split our teams to focus on sled and enterprise. It was a pretty big change and I would say the execution to that change that wasn't what it should have been.
With the closing of Aerohive in the middle of.
Happening.
Mid quarter, and then we we reset commission plans starting in Q2 I.
I think that caused some disruption and and I think the issues were more internal too extreme.
I think we have a lot of these issues behind US now we're excited about new leadership in Americas, where are we had the most weakness and going forward with the new leadership.
With some of the structural changes behind us and now new initiatives to better align the field.
We feel good about wherever you are we had.
In certain markets, we had to fill seats, where we weren't covering certain markets and we moved aggressively to do that but there was still a gap in coverage.
This stage of the game, we fill the gaps.
And we commented on Q4 pipeline, we're really encouraged about what we're seeing in the pipeline build for Q4, and that's global Thats globally. One last question I'll cede the floor Remic can you just remind us what the.
Sort of quarter to quarter to quarter.
Not of benefits from cost cutting will look like from as we go from the March quarter to the June quarter, what's that not and then I think theres. Some more in the June quarter that goes into the September quarter, what's the dollar value of that not that we we can.
Bidder analyze the numbers on.
So if you look at the operating expenses into June quarter in absolute dollar terms, they should be up sequentially.
That basically is because we do see season pattern as some of the operating expenses specifically commissions. As you know Q4 is our biggest quarter and therefore commissions tend to be able hires at the absolute dollar amount should go up however in Q4 versus Q3, you can see the full benefits of the era.
Synergies as you know we keep some some employees from Aerohive for transition period, as we migrate main either ickes systems over to ours.
As Ed mentioned, we're on track to reach the April six due dates when that happens a number of transition employees will exit the business and the to be some sequential savings related to that and as a company in general we continued job of Super strong focus on operational efficiency. So I would not be able to give you pre.
<unk> dollar amounts in terms of the cost savings, but they will definitely be that offset by the impact of the of the higher commissions. So that your overall operating expenses.
Should not be up too much in Q4 versus Q1.
Just.
The last piece of that was isn't there some in the June quarter as well, so theres a little bit of a bleed into benefit into the September quarter.
Correct.
Some employees will exit fiscal Q4, so that that's the September quarter is really the first quarter, we get a 100% of the benefit of be.
Aerohive synergies perfect. Thank you very much I appreciate the commentary and I think you guys did a good job of Telegraphing.
The soft conditions so.
Just wanted to make that comment thanks, Thanks, Alex.
Our next question comes from Eric Martinuzzi of Lake Street. Your line is open.
Yes, I want to drill down on the the softness in the quarter specifically.
The connecting the three large deals at so longer sales cycles, and trying to tie that back to the press release commentary around softness around you as public sector in Asia Pac.
Either for Andrew Rami.
Sure.
We have what are the things that we commented on is that.
Funding letters coming from USAC, which is the government agency around E rate opportunities.
We had a very large school district.
Opportunity to the tune of 6 million dollar opportunity that.
We felt it was going to we were going to get the funding letters, we have the order as far as.
The customer and our partners are lined up but.
It's not a go until we get the funding letter and the funding letter didn't arrive.
And but we see this is one that pushed and it was one that we were counting on.
We talked to you know there were a couple of other.
Situations, where we had the federal side, some pretty sizable orders that we thought we were going to that we're going to come in they didnt materialize.
Were pushed.
Those that has since been turned back on so we have the confidence of the growth in federal now so that I think that will give you a flavor.
And maybe offline I don't want to get too detailed and going deal by deal by deal, but I think it gives you a flavor.
And that I made the comment to Alex as far as.
The restructuring of the organization.
And then.
The reintroduction of New Commission plans during the quarter, which I think we're somewhat somewhat distracting and I think it created some gaps in coverage.
The final point is that in a P.J.C.
The bookings were strong in a PGC a lot of the projects, where construction oriented and a lot of times with those construction projects. They are not ready for delivery. So even though the bookings were there.
The shipments were were delayed and therefore, we didn't recognize revenue in this.
Quarter, So I think a P.J.C., we called out we called.
Slide and the government segment, I think we call that federal and that's a little little color for Eric.
Okay. That's helpful thing.
Talked about partnerships, they're going to help people that are going to help you out.
The latter half of the calendar year. The first half of fiscal 21 is there any detail you can give us. There are you already trialing are these partners good to go on the product or they testing the product and trying to figure out the timing of the launch of a bigger committed or is there are there issues.
Just educating their own channel yeah, So I think theres a couple of.
Different opportunities that we would classify one is is fiveg, obviously, we're expecting a large wave of spend around the construction and deployment of Fiveg networks.
We are working hand in glove with a.
Major very significant provider of deploying Fiveg solutions.
We have an indication that they want to work with US our teams are working on.
Specific they have five different use cases for our technology. We expect the first use case to roll in July .
But it's it's the kind of opportunity that are.
Eight figure opportunities and then they grow we're not at Liberty to call out the name, but we can tell you that this is something that will start and build and could be a 10 million to 20 million to 40 million to 50 million type annual opportunity over the period, but the next few years. So.
We are aligned we have very good relationships and our teams are working hand in club and glove with their engineering teams.
We have another existing customer it's looking at next Gen Fiveg.
In there what we would call their assurance platform.
This is something again.
That will wrap up significantly with Fiveg and we're working our teams are working very close.
With that customer on those solutions and again this is something that.
The customer would prefer that we roll out the solution yesterday.
But it's not ready yet and it will be ready coming our Q1, it's another similar sized type opportunity.
With stadiums, we have a unique interconnect between our Wi Fi six remember we were the first.
Company.
To deploy white by six and stadium.
That gives us a competitive advantage. We also have a unique handoff to fiveg I can comment with Verizon on that because of the Verizon stadiums that we have in that we've done with them.
There are other.
Sports leagues and there are other opportunities in that venue that have significant pipeline.
These are opportunities that will begin to kick in in Q4, and the second half of calendar 20.
And.
Then on that on the resale side, we have some partnerships.
That could be quite large where we have osisko displacement opportunity.
And it's with enterprise sales teams where.
We are in a position.
For the enterprise teams at this partner to work with our teams to drive significant business.
If we were to achieve 10% wallet share from this customer it could be a 100 million dollar type opportunity. So we don't have these we don't have deals or bookings in the bag, but they're kind of opportunities that have us very excited about future growth.
And the growth potential for extreme.
Okay and then last question for me on the repurchase the MSR and then the incremental shares that were purchased I guess.
Program settlement.
Just want to make sure I've got my numbers straight so 30 million spent.
Third share price of 7.94 4.2 million shares bought back is that correct.
Thats correct on all three counts.
Okay, and then the appetite to further invest in a repurchase plan as we.
Head into the back half of the fiscal year.
Yes.
Eric that's the the board philosophy, and we socialize. This is that we would like to.
Absorb the dilution from our equity plans and I would say that that had a minimum.
We were.
Between management and our board.
We were in a position to move on this in the fourth quarter and take advantage of the current values of our stock, which we we believe is undervalued.
I think that you I think it's fair to say that our board will be committed to that returning capital to shareholders. We do have to govern our share buybacks by leverage and.
Our agreement with our backs and so we'll be balancing our cash flow and then what we have available.
Under our lending agreements.
And I would say that we will remain committed to buying back shares.
Got it.
Thanks for taking my questions.
Thanks, Eric.
Our next question comes from Paul Silverstein of Cowen Your line is open.
Thanks, I want to us three questions Vms first off so 10% operating margin statement about getting there in the second half of this year.
I read it correctly.
What are the underlying assumptions to get there in terms of revenue gross margin in opex.
So the.
Other revenue side, we're looking at I would say very low single digit growth on the revenue side.
On the gross margins, we see the gross margins continuing to inch up.
As we look into the next year, we have a tariff benefit.
Weve raised price, we have some tariffs going away.
We have the product refresh at the combination of this we see adding as we roll into the second half of the year.
I would say at least a point of additional incremental gross margin.
And on the Opex side, we are driving costs out of the business, we still have the synergy from the Aerohive trend transaction.
We still have on a go forward basis, we see engineering efficiencies and streamlining our switching and our wireless portfolios.
We are consolidating them and then on the sales and marketing side I highlighted 27%, we look at that and think that number is way too high.
And we will be attacking that and over the next few quarters. We would see you know the opportunity to pull a couple of points out of that so we see we see ending the year at this week, we call it 12% to 13%.
Theres a lot of competence and the team and calling that number will year. This this fiscal year I'm sorry the June .
The June quarter and then.
We'll have we'll have benefits in all three of those items that you just laid out for the second half of calendar 2000.
Hi.
If I try to reduced down to sound bite.
Like most through to gifts from what you posted this quarter to 15% in other September December both sounds like the bulk of that there's going to come from Opex.
I don't want to worsen another just sort of make sure understood yet I think Paul I think you heard revenue.
The point that half of tear tariff impact this quarter.
And obviously if that tariff in fact goes away there is appointed a half of gross margin for you.
So I think there's a lot of there's a lot of different ways, we can get there Paul.
Okay.
Our next.
Pauses, but I wanted to I know, it's been asked a couple times will go back to the shortfall. This quarter. The three deals are references to one of them was $6 million.
And thats been pushed out to the lack of funding commitment, which we're hoping that comes in later in the year.
You have visibility is there.
Is there any.
More concrete answer to that commune or you just hopeful that will come in later this year or is there for them to recover made clear the root funding will be there.
Just so that.
Well.
I'll digress, we don't like to get to specific about specific deals in this case.
It's a very large school district.
And.
Or is the round this is that USAC, whose investigating the different schools and.
Our validating the funding request.
Ed and.
Our understanding is that that process has been complete so.
Our experts who are calling this have high degree of confidence.
At this opportunity comes in.
So as you're expecting mid opportunities in large through your expected to just to sometime in the next several quarters.
Yes.
Paul I don't think we want to get into calling specific deals in specific quarters.
As you know in general.
I would say that we feel that deal is more eminent.
Got it alright, without getting some specifics, but some other deals or worth how much.
Collectively.
Yeah, I think if you take.
I think if you combine the two.
It's it's a double digit number.
You said those are delayed not canceled years, you're expecting them to at home in that you have visibility as to timing or you don't have visibility we have theres theres one customer that.
Had.
Halted.
There their purchases and that has been turned back on it we've already seen orders in January so we know that's coming.
The other situation was large construction projects happening any PJC, where we have the order. It's just a function of delivery timing. So the customer selected extreme we won.
But.
As happens with a lot of construction projects there they are timing delays et cetera. It so we're expecting that.
We're expecting those deals from a shipping perspective to come through.
Towards the back half of this quarter.
Paul If I can you just said something sorry to interrupt.
Normally a company that generates revenue of 270 million win win some deals get pushed out we should be able to get the deals. The reason, we're pointing out to them is that each of them were multimillion dollar deals.
And that they were kind of embedded in our expectation on guidance for the December quarter, and pushed out and given that some of the weakness that we've called out entering the quarter, we were not able to make up for these contracts.
Sure.
And I'll highlight that two out of them are related to us public sector funding, which is which is coming back. It's a question of timing and Thats why were.
Calling in certain.
About the timing of the recovery and the third one is we got the bookings just when when the customer is going to roll out the projects. So that's why we calling them out.
But again, we don't want to get to specific.
His contract as they should be should be an offset elsewhere in a normal environment.
Understood I appreciate it up but I guess I'm little confused explanation.
Got it sounds like.
In two of the three is not all three you expect to see some degree of revenue.
If not all the revenue for those you question contracts in the March timeframe, if I understood you correctly.
Next question.
Why isn't the March guidance, all things being equal much better than it appears to be relative to expectations that I think you all help fashion on in the commentary in guidance you provided previously I'm not trying to give you all hard time and John I understand so so.
I think the seasonality should be slightly more than the 3% regarding at the midpoint.
We just announced the departure about how to sell.
And we just missed out mid point for the December quarter by 5 million.
So when you take that in into accounts I hope, you'll understand why we're being cautious in our guidance for the March quarter no understood. So so as to why troll down it sounds like all the weakness is on the extreme classic midstream organic or was there any I guess there was some you write weakness with especially Aerohive no. There's.
Question.
Pretty much on all of the contracts that had the pipe for years.
Mmm. So there's just I'm sorry, you by the way the March quarter Aerohive versus the December quarter is a.
Seasonally down quarter, but but thats the normal seasonality, but but there was no delay in any read funding for Aerohive enhanced very strong result, we had at $42 million.
So so were high perform well all the weakness that you're seeing is on the extreme organic just for the business correct.
Okay.
One last question for me on.
Sure just referenced again, if I go back to the previous quarter.
You All had said you all had said now what we've done as grew to two terms of America's go after that this past quarter, we completely restructured we Bruce on accounts, we've heard a lot of new people. So we slowed so now that we're sitting so now what we're seeing as we're seeing his teams come in we're really excited about our new leader those comments got a lot of experience while mobile I don't mean.
It has room just trying to understand.
Hi, I hadn't impression for do so the previous quarter I get that we talked on many periods here. So.
I want to over emphasize my latest but it sounded like from what you so last quarter.
Due to restructuring Americas, which you all had called out as the multiyear weakness this quarter in that you. All we're seeing progress at that point in time question being what changed or did I misunderstand your comps from last quarter.
Just that we have leaders that are now 123 quarters into their roles and they're getting a very strong grip on on the business.
And then we'll see have some of the deals that got delayed coming back and so we feel like both in the what we call this flat state local and education business.
Enterprise space, having new leaders in place is going up it's going to really help.
Also remember that we BCP organized.
North America by certain verticals. In addition to enterprise that are being addressed by dedicated teams and these guys are now being paid for full quarter.
And they know their to Richard as you know their accounts and so we feel like that impacted the disruption from the reorganization in the U.S. is now behind us and we're ready to go Hunt.
All right I've got other questions, but out of respect for others. So would call to come offline. Thanks, guys. Thank you okay.
As a reminder to ask a question. Please press Star then one.
Our next question comes from Christian swap of Craig Hallum. Your line is open.
Great. Most of my questions have been answered just have two quick ones. Please could you give us an update on where we are in the product refresh.
And how many of the products a volume have been refreshed.
And can you give us an update I know previously you were very excited about a relationship with Broadcom can you give us any update there if there's anything new thank you. So on the product refresh out of a total.
Identified product before your 57 product the aim was to refresh 40 of them.
As of the December quarter, we had done 19, so that's the 40%.
I mentioned in my in my comments, and we're going to see an acceleration in the March quarter that would take us to 70% of that 40 number.
So about 20 rate.
And on the on the second question I'll address one aspect of it which is the procurement relationship and outlet at comment on on the partnership and the fact that were their preferred partner, but basically.
Given our relationship and the fact that the majority about chipset are supplied by Broadcom. We have an early access program in place that we've extended and that basically give us guaranteed access to new products that are coming out as well as an opportunity to negotiate certain discounts. If there is big opportunities out there that we can fulfill.
With.
Products, having broadcom componentry in them.
And I think the second of the second half of that.
Question is.
Our teams are working on putting together.
What is a solution story.
For extreme broadcom from Silicon to software.
And how to present that and we've identified accounts to go after to kick that off but the our product teams are working on what is the integrated solution.
That we can go to these large enterprise customers with so I'd say, we're still in the.
Yes, we are still about call it product development stage of that.
And expecting that to come in and the second half of this calendar year.
Okay, and then I guess just one last quick follow up if I may you guys mentioned in a couple of times.
Excuse me that.
At 27% sales and marketing expense was was way too high.
Have you guys done any work to let us know what is an appropriate number there appropriate percentage revenue number I it.
We think it should be at a low twentys and.
If you look if you look at peers and if you look at companies that have larger scale you could see that number come down customers, who were going after different target markets like if you're going after hyperscalers that numbers is much lower.
At our market currently we're looking at a low 20%.
Metric.
And that we believe we can drive with increased sales productivity and then efficiency and the changes that we're making today, we think will help us addressed this.
We're putting this under a magnifying glass, we've highlighted some changes that we're making and.
We expect to be making progress on this and the second half of our calendar 20.
So that's a statement about quarterly revenue today, right, so low twentys that call it.
To 55 to 60 to 70 not.
A return of.
Let's say growth and better execution of the team and et cetera and.
Quarterly revenues in the 300 and change level right. So you're talking about getting into the low twentys and what has been kind of the quarterly run rate for the last few quarters, plus or minus is that you wouldn't be a challenge for us to be the low twentys on on revenue of.
To 60 or to 65.
I think to get to the low twentys.
To be above 300 so.
At the current revenue level had mentioned earlier that we anticipate gained about two points.
I would go from 27 to 25 and that will be over the next few quarters to get to low twentys, we'd need to revenue to be above 300 million a quarter and we need some some some of these actions we take base over longer run because it.
It's a big transformation.
All right I was just I just wanted to clarify that it's really topline driven with a little bit of.
Oh focus and attention on expense, that's not going to be all expense driven which is.
You just answered for me. Thank you I don't have any other questions. Thank you Christian.
There are no further questions like to turn the call back over to Ed Meyercord for any closing remarks.
Thank you and thanks for everyone for participating on the call today, we also like to shout out to our employees.
A lot of people putting in a lot of of effort on the business integration the development of the cloud.
And.
Everything that we're doing out in the field and driving our partner and customer engagement. So a lot of them are listening into we appreciate all of your efforts, we're looking for to sharing updates about our investments and software products. The integration a lot of things that we've highlighted here.
Over the coming months and it will be at Investor conferences, we have JMP technology conference in the Ross.
This conference this quarter. So thanks, everybody and have a great day.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.