Q1 2024 Extreme Networks Inc Earnings Call

Yeah.

Yes.

Yeah.

Good day, and thank you for standing by and welcome to the extreme networks first quarter fiscal year 2024 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

Ask a question during the session you will need to press star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again please.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Stan Kofler, Vice President of corporate strategy and Investor Relations. Please go ahead.

Thank you Abigail and good morning, everyone and welcome to extreme networks first quarter 2024 earnings conference call I'm, staying colder vice president of corporate strategy and Investor Relations.

With me today are extremes, president and CEO admire court and CFO, Kevin Rhodes, We just distributed a press release and filed an 8-K detailing extreme networks' financial results for the quarter for your convenience a copy of the press release, which includes our GAAP to non-GAAP reconciliations is available in the Investor Relations section of our website at extreme Networks' dot.

Com along with our earnings presentation.

Today's call and our discussion may include forward looking statements based on our current expectations about extremes future business financial and operational results growth expectations and strategies all financial disclosures on this call will be made on a non-GAAP basis unless stated otherwise we caution you not to put undue reliance on these forward looking statements as they are.

Involve risks and uncertainties that can cause actual results to differ materially from those anticipated by these statements. These.

These risks are described in our risk factors in the 10-K report for the period ending June 32023 filed with the SEC.

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.

Following our prepared remarks, we will take questions.

Now I will take the I will turn the call over to extremes, President and CEO admire court.

Thanks, Dan and thank you all for joining US. This morning extreme delivered another strong quarter with revenue growth of 19% and EPS growth of 75%. We continue to move upmarket and the dollar value of deals over $1 million continued to grow quarter over quarter cloud.

Cloud adoption remains strong I'm, 30% year over year AOR growth to $141 million in SaaS deferred revenue grew 38% year over year customer retention metrics remain high its estimate for our customers' loyalty and preference for our industry leading solutions.

We outpaced overall market growth in the quarter and expect continued share gains in fiscal 2000 and for our core business.

Our new go to market initiatives outperformed in the quarter as well. This includes expansion across APAC certifications and regulated industries like state and Federal government. The addition of seven new managed service providers and a new disruptive white space opportunity to sell the enterprise through large service providers with a P.

Private subscription offer.

In addition, we have a plan to license all network devices connected to our revolving extreme cloud platform. This will deliver even greater simplicity value and flexibility beyond the cloud management capabilities, we offer today and create more stickiness for our SaaS business.

Our strategic initiatives around differentiated zero trust posture expanded machine learning and AI capabilities are expected to drive expansion.

Our growth in average revenue per user.

At the end of fiscal Q1, we felt the impact of the macro at the macro environment trends in our industry and lowered our outlook for near term top line growth.

The higher interest rate environment, and economic challenges in some of our larger markets like Germany license sales cycles have pushed out a larger amount of end of quarter orders in Q1 than we would normally expect our channel partners are digesting, a large volume of backlog release and focusing on network deployment slowing down their current ordering.

And as a result, we don't expect run rate business to ramp as quickly as anticipated.

In light of what we would call an air pocket of demand and decision, making leading to our revised growth outlook for the year. We took immediate action to realign resources to drive higher productivity and profitability. As a result, we continue to expect high teens operating margin in fiscal 'twenty four.

That will allow us to grow our EPS by over 25% during the year.

Our funnel of opportunities continues to grow.

Double digits on a year over year basis, as our underlying business and competitive position remains strong.

Over the long term, we expect to return to a mid teens top line growth outlook in our mid twenties operating margin.

And here's why.

Customers tell us they are tired of complexity and flexibility and the high costs associated with the old networking models from the larger networking companies.

Choose extreme because we set the bar for modern networking with a combination of innovative and flexible technology licensing and deployment simplicity and a focus on driving impactful business outcomes customers view their network is a strategic asset to enhance operations power and scale, new services and reduce busy.

This risk, especially cyber security risk.

Our customers choose extreme for three primary reasons first as operational simplicity.

That is driving productivity network availability.

Ease of use improve both time to value and total cost of ownership of their network investment with.

The only networking provider that can deploy campus networking fabrics from our cloud.

This makes moves adds and changes to networks is simple and seamless allows customers to segment networks and provides unmatched security and resiliency, while fabrics are common in data center environments.

We're the only competitor who can break these services to the dynamic campus environment orchestrated through our cloud we create one network one cloud for customers to remove the complexity of managing their entire network infrastructure.

Second we offer unmatched flexibility, we offer cloud choice public private hybrid and edge cloud deployments that can be managed through a single interface, our universal switches offer O S choice and deployment options.

We have the industry's simplest licensing unlike competitors, we don't require customers to hire full time employees just to manage licenses.

And finally, we're the only networking vendor that can manage mixed environment without requiring them to rip and replace all their infrastructure at once as they modernize.

Third our cloud solutions offer actionable business insights security scale and innovative technologies, such as AI ops and automation or AI ops solution now cover over 200000 devices are gaining traction with large customers as they look for new ways to leverage that network to drive better business.

Outcomes.

With our digital twin technology customers can stage and test their network deployment of digital environment shaving months of actual physical deployment and troubleshooting time.

Our AI ops solutions proactively identify network issues reduce false alarms and allow I T teams to be proactive instead of reactive.

Here are a few examples.

We help San Diego Community College connect 80000 students across multiple campuses with our fabric technology.

No other vendor in our industry has the expertise our ability to create a single secure hyper segmented campus network that enables zero touch provisioning of new locations or moves adds and changes to network elements within a matter of minutes with one network running on one cloud they decreased opex by 50% again.

None of our competitors can do this the Dubai World Trade Center recently hosted <unk>, the world's largest technology trade show, which was powered by extremes wireless fabric and cloud solutions.

The value supported more than 180000 attendees and 6000 exhibitors at this massive event.

They use extreme fabric to quickly simply and securely segment 3300 individual networks in a matter of days with an it staff of two people.

<unk> said it was impossible to accomplish this with our competitor solution. It would take weeks with a much larger team and introduces significant margin of error due to their complexity.

Our global leading fast food chain is selected extreme cloud SD Wan to ensure consistent performance and improve guest experiences at 1500 locations across the U K.

With extreme this industry leader has greater visibility across its network and we will be able to simplify network management at all locations increase overall network security and optimize operations by improving performance for critical applications.

These large accounts become important references of brand builders extreme.

Our increasing pool of large high profile customers at our technology differentiation is why we continue to see the value deals over $1 million grow each quarter in Q1, we had more than 30 deals over $1 million.

We continue to have a healthy customer order backlog with clear visibility to order with specific customer request dates through the balance of our fiscal year.

This quarter, our product lead times normalized, allowing us to continue working down backlog from product constraints.

We continue to expect our backlog to sell at a range of $75 million to a $100 million by the end of Q4 fiscal 'twenty four.

Next week at our Investor Day, we will dive into specifics as to why our technology differentiation brings unmatched simplicity flexibility insights that are driving more and more of these high profile customer wins and the Windsor elevating our brand and driving share gains both in the channel as well.

<unk> customers will also share why we're so excited about new commercial opportunities with our recently launched modern managed services platform are private subscription offer for very large service providers are highly targeted certification in security compliance opportunity and the elevation of our entire portfolio.

To subscription licensing.

All of these factors provide accelerants to the share gains we're driving in our core business.

With that I'd like to turn the call over to Kevin.

Thanks, Ed Im.

I am encouraged not only by our performance in the first quarter, but also our ability to be decisive and take prudent action as we experienced shifts in market demand.

Let me talk about our first quarter results and then I'll move to the outlook.

In the first quarter, we again demonstrated strong financial and operational performance. We also showed that we remain committed to continuing that level of performance and the future let.

Let me get into the numbers.

First quarter revenue of $353 $1 million grew 19% year over year exceeding the high end of our expectations entering the quarter.

Products revenue of 350 to $253 5 million.

Grew 23% year over year, reflecting continued improvement in our supply chain environment.

We achieved strong double digit year over year growth in campus switching which grew sequentially as well.

SaaS AAR grew 30% year over year to $141 million up 100 from $109 million in the year ago quarter.

Driven by the strength of our renewals subscription deferred revenue was up 38% year over year to $236 million.

Total subscription and support revenue was $99 7 million.

Up 9% year over year. This growth was largely driven by the strength of cloud subscription revenue up 32% year over year.

Recurring revenue continues to be a positive story at extreme.

Total recurring revenue of $95 million grew 11% year over year accounting for 27% of overall revenue.

Additionally, as we ship products from backlog it will be a tailwind for our SaaS growth.

And our current outlook, we expect recurring revenue to be approximately 30% of our revenue for fiscal 2024.

Unknown Executive: Good day and thank you for standing by.

Unknown Executive: Welcome to the Extreme Network's first quarter, fiscal year 2024, Financial Results Conference call. At this time, all participants are in a listen only mode.

The growth of cloud subscriptions and support drove the total deferred revenue to $525 million up 24% year over year.

Our gross margin increased once again, achieving 61, 1% as compared to 62% in the fourth quarter and 57, 6% in the year ago quarter.

Unknown Executive: After this speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your questions, please press star 11 again.

Is up 90 basis points sequentially and up 350 basis points year over year.

Unknown Executive: Please be advised that today's conference is being recorded.

We attribute our gross margin improvements to the excellent work by our supply chain team.

Stan Kovler: I would now like to hand the conference over to your speaker today, Stan Kovler, Vice President of Corporate Strategy and Investor Relations. Please go ahead. Thank you, Abigail.

Lower overall distribution costs.

Greater greater mix of high margin subscription revenue.

Our first quarter operating expenses were $153 million.

Stan Kovler: Good morning, everyone, and welcome to Extreme Network's first quarter, 2024, Erick's Conference call. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations.

Up from $135 million in the year ago quarter and down from $156 million in the fourth quarter.

Stan Kovler: With me today are Extremes, President and CEO and Myercord and CFO, Kevin Rhodes. We just distributed a press release and filed an 8K detailing Extreme Network's Financial Results for the quarter. For your convenience, a copy of the press release, which includes our gap to non-gap reconciliations, is available in the Investor Relations section of our website at Extreme Networks.com, along with our earnings presentation. Today's call in our discussion may include forward-looking statements based on our current expectations about Extreme's future business, financial and operational results, growth expectations and strategies, all financial disclosures on this call will be made on a non-gap basis unless stated otherwise.

The year over year increase reflects increased R&D investment and sales and marketing expenses to support our higher revenue growth plans.

Our strong revenue growth gross margin expansion and operating expense management contributed to another increase in our operating margin now at 17, 7%.

Up from 12, 1% in the year ago quarter and up from 17, 4% in the prior quarter.

To that end first quarter earnings per share was <unk> 35.

Above the high end of our guidance range entering the quarter.

We finished the first quarter with cash and cash equivalents of $224 million and net cash of $27 million after repurchasing another $25 million worth of shares.

Stan Kovler: We caution you not to put undue reliance on these forward-looking statements as they involve risks and uncertainties that can cause actual results differ materially from those anticipated by these statements. These risks are described in our risk factors in the 10K report for the period ending June 30, 2023, filed with the SEC. And 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.

We repurchased $125 million.

Of our shares over the last four quarters.

Executing on our commitment to offset dilution from stock awards, we expect our share count to remain relatively flat for the rest of this year.

The $71 million that we generated in free cash flow.

Stan Kovler: Following our prepared remarks, we will take questions.

Edward Meyercord: And now I will turn the call over to Extreme's President and CEO, Ed Myercord. Thanks, Ian, and thanks all for joining us this morning. Extreme delivered another strong quarter with revenue growth of 19% in EPS growth of 75%. We continue to move up market, and the dollar value of deals over a million dollars continue to grow quarter over quarter. Cloud adoption remains strong on 30% year-over-year ARR growth to 141 million and fast afford revenue grew 38% year-over-year.

<unk> represents a 20% free cash flow margin.

Above the high end of our long term model.

And we also generated $68 million of.

<unk> adjusted EBITDA.

Now turning to guidance.

We remain optimistic about the enterprise networking spending environment and our ability to take share.

Looking ahead at the balance of fiscal 2024, we are taking a more cautious tone in light of the current spending environment.

Just on changing customer buying patterns and macroeconomic conditions, we are tempering, our revenue outlook for this quarter and the balance of the year.

Edward Meyercord: Customer retention metrics remain high, a testament to our customers loyalty and preference for our industry leading solutions. We outpaced overall market growth in the quarter and expect continued share gains in fiscal 24 and our core business. Our new go-to-market and issues outperform in the quarter as well. This includes expansion across APAC, certifications and regulated industries like state and federal government, the addition of seven new managed service providers, and a new disruptive white space opportunity to sell the enterprise through large service providers with a private subscription offer.

We do believe that this is an air pocket as opposed to a more systemic issue within our target markets.

For the second quarter, we expect revenue to be in a range of $312 million to $327 million.

Gross margin to be in a range of 62% to 62, 2%.

Operating margin to be in a range of 15, 4% to 17, 3%.

And earnings to be in a range of 26% to 31.

For diluted share on a share count of $134 million 134 million shares.

Edward Meyercord: In addition, we have a plan to license all network devices connected to our revolving extreme cloud platform. This will deliver even greater simplicity, value and flexibility beyond the cloud management capabilities we offered today and create more stickiness for our SaaS business. Our strategic initiatives around differentiated zero-trust posture, expanded machine learning and AI capabilities are expected to drive expansion, ARR growth, and average revenue per user.

Despite expected near term market conditions, and lower revenue expectations for the full year fiscal 'twenty four we expect mid to high single digits of revenue growth, which we believe is above industry growth estimates and implies our share gains will continue.

We have also taken recent actions to ensure we align our cost structure with the current level of revenue growth that we expect to achieve.

As a result, we believe we are well positioned to deliver strong profitability and improved operating margins during the year.

Edward Meyercord: At the end of fiscal Q1, we felt the impact of the macro environment trend in our industry and lowered our outlook for near-term top-line growth. The higher interest rate environment and economic challenges in some of our larger markets like Germany, like in sales cycles and pushed out a larger amount of end-of-quarter orders in Q1, then we would normally expect. Our channel partners are digesting a large volume of backlog release and focusing on network deployment slowing down their current ordering. And as a result, we don't expect run rate business to ramp as quickly as anticipated.

And we expect to generate EPS growth of approximately 25% in fiscal 2024.

As Ed noted, we remain committed to long term double digit growth and I see tremendous opportunity for extreme to grow our business accelerate our recurring revenue contribution from subscription and support and improve our margins and cash flow.

I look forward to laying out some of our long term plans, our new long term plans at our at our Investor Day next week and with that I'll now turn it turn the call back to the operator to begin the Q&A session.

Edward Meyercord: In light of what we would call an air pocket of demand and decision-making leading to our revised growth outlook for the year, we took immediate action to realign resources to drive higher productivity and profitability. As a result, we continue to expect high-teens operating margin in fiscal 24 that will allow us to grow our EPS by over 25% during the year. Our funnel of opportunities continues to grow of double digits on a year-over-year basis as our underlying business and competitive position remains strong.

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Ask that you limit yourself to one question and one follow up and return to the queue for additional questions.

One moment for our first question.

Yes.

Our first question comes from David <unk> with UBS. Your line is open.

Edward Meyercord: Over the long term, we expect a return to a mid-teens top-line growth outlook and a mid-20s operating margin. And here's why. Customers tell us their tired of complexity and flexibility and a high cost associated with the old networking models from the larger networking companies. They choose extreme because we set the bar for modern networking with a combination of innovative and flexible technology, licensing and deployment simplicity, and a focus on driving and packed full business outcomes. Customers view their network as a strategic asset to enhance operations, power and scale new services, and reduce business risk, especially cyber security risk.

Hey, Thank you this is actually Andrew on for David.

Wanted to ask you one of the big.

Sort of issues in looking at this industry for some time now has been that the elevated backlog certainly you've had it as well. So what I'm wondering is maybe you can help us understand a little bit better.

How much of the sort of mixed signals that the backlog has been sending to the entire industry is driving your slower outlook versus entirely macro but can you sort of pull that apart for us and help us understand it.

Yes, Andrew.

Jumping in.

And then that and then Kevin you can.

You can follow up Andrew I think when we think about the backlog and you think about what's happened over the course of the last several quarters and it's not just extreme it's the whole industry.

Edward Meyercord: Our customers choose extreme for three primary reasons. First is operational simplicity. That is driving IT productivity, network availability, ease of use, improving both time to value and total cost of ownership of their networking investment. We're the only networking provider that can deploy campus networking fabrics from our cloud. This makes moves ads and changes to networks simple and seamless allows customers to segment networks and provides unmatched security and resiliency. While fabrics are common in data center environments, we're the only competitor who can bring these services to the dynamic campus environment orchestrated to our cloud.

Yes.

Very high level of backlog release into the channel and so in terms of how it's affecting current demand.

You might say digestion, but effectively we put we put a lot of product into the channel and so our channel partners are receiving a lot of product and theyre moving forward deploying and are very busy deploying net.

<unk> networks.

And with that focus on receiving an unusual an unusually high amount of product.

And networking gear. They are really active in deployment mode right now and I would say there is.

Edward Meyercord: We create one network, one cloud for customers to remove the complexity of managing their entire network infrastructure. Second, we offer unmatched flexibility. We offer cloud choice, public, private, hybrid, and edge cloud deployments that can be managed through a single interface. Our universal switches offer OS choice and deployment options. We have the industry's simplest licensing, unlike competitors, we don't require customers to hire full-time employees just to manage life. Services. And finally, we're the only network and vendor that can manage a mixed environment without requiring them to rip and replace all their infrastructure at once as they modernize.

And with that they passed some of their purchasing and sort of drawdown from the channel. So I think thats.

Thats, how thats affecting and that's how you should think about this affecting the demand and the current demand equation as we said, we're calling it <unk>.

Air Pocket this will pass.

They deploy their networks.

They're going to get back to kind of normal course ordering.

Consistent with kind of normal course demand for networking in the industry, Kevin do you want to add anything to that I.

I think you hit it I think you hit all the points okay.

And then just my follow up on that is just obviously as you've got.

Edward Meyercord: Third, our cloud solutions offer actionable business insights, security scale and innovative technology such as AI ops and automation. Our AI ops solution now cover over 200,000 devices that are gaining traction with large customers as they look for new ways to leverage the network to drive better business outcomes. With our digital coin technology, customers can stage and test the network deployment in digital environment, shaving months of actual physical deployment and troubleshooting time. Our AI ops solutions proactively identify network issues, produce false alarms and allow IT teams to be proactive instead of reactive.

Backlog working down your expected now to normalize in Q4, you have got some very difficult comps in the back half what is it that gives you the confidence that youre going to see revenue reacceleration in the back half to hit your fiscal 'twenty four revenue targets.

Well.

Andrew It's really about what we see in our funnel.

We have.

Very clear picture of opportunities.

All of those opportunities have kind of a timeline next to them.

And it's the quality and quantity and volume of our funnel that gives us the confidence to make the call.

Edward Meyercord: Here are a few examples. We help San Diego Community College connect 80,000 students across multiple campuses with our fabric technology. No other vendor in our industry has the expertise or ability to create a single secure hyper-segmented campus network that enables zero touch provisioning of new locations or moves as and changes to network elements within a matter of minutes. With one network running on one cloud, they decrease up x by 50%. Again, none of our competitors can do this.

As we turned into Q2, Kevin mentioned that our teams became more cautious with their call.

Some of the bookings that we would normally see at the end of the quarter didn't happen.

The slowdown of sales cycle people became a lot more cautious about the call here.

A lot of those opportunities landed in the second half of the year. These are high quality.

<unk> opportunities and so I would say that's that.

That's the pet food.

That's what's driving the confidence interval.

Kevin I'll give you a shot to jump in as well.

Edward Meyercord: Did you buy World Trade Center recently hosted Gitex, the world's largest technology trade show, which was powered by extremes wireless fabric and cloud solutions. The venue supported more than 180,000 attendees and 6,000 exhibitors at this massive event. They used extreme fabric to quickly, simply and securely segment 3,300 individual networks in a matter of days with an IT staff of two people. Conflicts of candy so as impossible to accomplish this with our competitor solution, it would take weeks with a much larger IT team and introduces significant margin of error due to their complexity.

I mean, as we think about that.

The quarterly revenue throughout the rest of the year and our guidance for the full year. I mean, obviously Q4 is the toughest comp that we have with the $365 million last year, but we're not calling for accelerating growth over top of that we think that we're going to hit about mid teens for the full year compared to the full year 2023.

Thanks.

One moment for our next question.

Our next question comes from Alex Henderson with Needham Your line is open.

Great.

Edward Meyercord: A global leading fast food chain is selected extreme cloud SD when to ensure consistent performance and improve guest experiences at 1500 locations across the UK. With extreme, this industry leader has greater visibility across its network and will be able to simplify network management at all locations, increase overall network security and optimize operations by improving performance for critical applications. These large accounts become important references and brand builders are extreme, our increasing pool of large high profile customers and our technology differentiation is why we continue to see the value deals over a million dollars grow each quarter in q and we have more than 30 deals over a million dollars.

Quick clarification on the guide so if I were to look at the guide for the upcoming quarter.

I assume that the vast majority of the swing is in product sales in the store.

<unk>.

Software growth plus.

The normal the normal services.

Growth off of lagging product sales.

Suggest that overall services quarter to quarter and for the year, we continue to gradually increase over the course of the next three or four quarters.

Is that a fair assessment.

That's right that's right Alex all in product sales.

For the most part I mean.

I mean, obviously, the attach rate right with subscription and support.

Edward Meyercord: We continue to have a healthy customer order backlog with clear visibility to order with specific customer request dates through the balance of our fiscal year. This quarter are product lead times normalized, allowing us to continue working down backlog from product constraints. We continue to expect our backlog to sell in a range of 75 million to 100 million by the end of q4 fiscal 20, for.

It's associated with products, so youll see a little bit of moderation in the revenue there for subscription and support as it relates to product being being lower but the majority of the reduction.

Anticipation of revenue for the full year would be on the product side and Thats just literally the digestion issue. The macroeconomic people are just taking longer to make decisions and decision cycles are lengthening.

Edward Meyercord: Next week at our investor day, we'll dive into specifics as to why our technology differentiation brings unmatched simplicity, flexibility, insights that are driving more and more of these high profile customer wins. And the wins are elevating our brand and driving share gains both in the channel as well as our enterprise customers. We'll also share why we're so excited about new commercial opportunities with our recently launched modern Atlantic services platform, a private subscription offer for very large service providers, our highly targeted certification and security, compliant opportunity and the elevation of our entire portfolio to subscription licensing. All these factors provide excellence to the share gains we're driving in our core business.

And we.

We feel like we're in this air pocket, where we think we will come out of it. The question is is the absorption period, if you will within the market and win some macro market come back I think we're seeing this with many companies across the sector.

So just to be clear the the growth.

Services is generally driven off of the last two years worth of product sales. So therefore it should.

Continued to increase quarter to quarter over the course of the 24 period, even if it's a very flattish kind of trajectory.

Overall in product sales.

That would be our expectation okay.

So if that's the case.

In order to hit your guidance is given it sounds like your product sales literally have to be down in the December quarter.

Kevin Rhodes: With that, I'd like to turn the call over to Kevin. Thanks, Beth. I'm encouraged not only by our performance and the first quarter, but also our ability to be decisive and take prudent action as we experience shifts and market demand.

Essentially flat.

For the for the full year.

Excluding the just printed quarter.

Also an accurate read.

Kevin Rhodes: Let me talk about our first quarter results and then I'll move to the outlook. In the first quarter, we again demonstrated strong financial and operational performance. We also showed that we remain committed to continuing that level of performance in the future. Let me get into the numbers. First quarter revenue of $353.1 million grew 19 percent year-over-year exceeding the high end of our expectations entering the quarter. Product revenue of $353.5 million grew 23 percent year-over-year reflecting continued improvement in our supply chain environment.

And if that's the case.

What.

What is the mechanics underneath the surface.

Between the inventory draw down at your channel versus the sell through.

So what is the rate of sell through look like.

Okay.

If you were to look at it from me.

Customer base perspective, as opposed to the two tier channel distribution perspective.

Okay.

I mean first of all fourth quarters, along way away right now we look at just the pipeline that we've got a combination of backlog that is expected for customer request states in the fourth quarter. So we have that information we've got the overall pipeline and we know some of that pipeline relates to existing customers. Some of its new logos, we assess that pipeline.

Kevin Rhodes: We achieved strong double-digit year-over-year growth in campus switching, which grew sequentially as well. SAS ARR grew 30 percent year-over-year to $141 million up from $109 million in the year-over-year quarter. If you're ever by the strength of our renewals, subscription deferred revenue was up 38 percent year-over-year to $236 million. Total subscription and support revenue was $99.7 million up 9 percent year-over-year. This growth was largely driven by the strength of cloud subscription revenue up 32 percent year-over-year.

Naturally between Q2, and Q3 will build more pipeline for Q4, and so I would say we throw that all through the Rashid and we look at what we think we're going to achieve for the year and it's up but it's up.

On a full year basis.

That debt that debt.

Single to high and.

Mid to high single digits for the full year as it relates to Q4, yes, we've got a tough comp there as I said as I mentioned.

That could be flattish.

Fourth quarter, but for the full year, it's still up yes.

Kevin Rhodes: Recurring revenue continues to be a positive story at extreme. Total recurring revenue of $95 million grew 11 percent year-over-year, accounting for 27 percent of overall revenue. Additionally, as we ship products from backlog, it will be a tailwind for our SAS growth. Based on our current outlook, we expect recurring revenue to be approximately 30 percent of our revenue for fiscal 2024. The growth of cloud subscriptions and support drove the total deferred revenue to $525 million up 24 percent year-over-year.

Yes. The question really was whats the difference between.

Sell through to customers.

What is the underlying customer growth rate.

In terms of.

Buying product from your channel.

As opposed to the work down of inventory and your two tier distribution channel.

So if you were to look underneath the surface here, yes, there is flat product sales, but.

It is reflective of underlying sell through.

Yeah.

Percentage of your revenues coming out of the two tier distribution, so how much of how much of this.

Kevin Rhodes: Our growth margin increased once again, achieving 61.1 percent as compared to 60.2 percent in the fourth quarter and 57.6 percent in the year-over quarter. That's out 90 basis points sequentially and up 350 basis points year-over-year We attribute our gross margin improvements to the excellent work by our supply chain team, lower overall distribution costs, and a greater, greater mix of high margin subscription revenue. Our first quarter operate expenses were $153 million, up from $135 million in the year ago quarter, and down from $156 million in the fourth quarter.

Channel distribution.

Inventory Destocking and how much of this is a.

Weakness in underlying demand.

I mean, it's hard to achieve that and pull that apart naturally Alex we don't have perfect visibility into all of that I would say that our two tier reseller and distribution.

Program, it's relatively healthy.

What I would say like they've got healthy now fully normalized.

Inventory levels that they have we don't have too much.

Necessarily in the distribution.

Kevin Rhodes: The year-to-year increase reflects, increase R&D investment, and sales of marketing expenses to support our higher revenue growth plans. Our strong revenue growth, gross margin expansion, and operating expense management contribute to another increase in our operating margin. Now at 17.7% up from 12.1% in the year ago quarter, and up from 17.4% in the prior quarter. To that end, first quarter earnings per share was 35 cents above the high end of our guidance range entering the quarter.

Level.

We've got our own healthy amounts that we have in our on our own warehouse.

We're looking at is more end customer demand challenges right now this air pocket, it's more about and customer demand to be you've got two wars going on right now et cetera et cetera. So we're just seeing Europe being more sluggish I would say area.

We commented, particularly in Germany that that's the area, that's really I'll call. It.

Causing the slowdown.

It's mostly in the European area, where we're doing well in APAC and U S.

Kevin Rhodes: We finished the first quarter with cash and cash equivalence of $224 million, and net cash of $27 million after repurchasing another $25 million worth of shares. We've repurchased $125 million of our shares over the last four quarters, and are executing on our commitment to offset delusion from stock awards. We expect our share accounts to remain relatively flat for the rest of this year. The $71 million that we generated in free cash flow represents a 20% free cash flow margin above the high end of our long-term model, and we also generated $68 million of adjusted EBITDA.

It continues to be strong, but just any area to that.

Okay.

One moment for our next question.

Our next question comes from Eric Martin Newsy with Lake Street Capital markets. Your line is open.

Yeah, So I'm going to just a clarification first on the guide for FY 'twenty for that mid to high single digits. So we're talking 4% to 9%.

I guess you would yes.

Okay.

And then.

I guess Steve.

The change in demand environment.

Kevin Rhodes: Now turning to guidance. We remain optimistic about the enterprise networking spending environment and our ability to take share. However, looking ahead at the balance of fiscal 2024, we are taking a more cautious tone and lighted the current spending environment. Based on changing customer buying patterns and macroeconomic conditions, we are tempering a revenue outlook for this quarter and the balance of the year. We do believe that this is an air pocket as opposed to a more systemic issue within our target markets.

Seems like up until about maybe six weeks ago.

We're still pretty confidently talking about a mid teens growth rate not only for FY 'twenty four but for FY 'twenty five.

What is there a particular.

And then two or two that that.

That you guys can point back to.

The market shifting kind of all at once.

Yes, Ed do you want to cover that.

Yes.

Eric Yes.

Kevin Rhodes: For the second quarter, we expect revenue to be in a range of $312 million to $327 million. Gross margin to be in a range of 60.2% to 62.2%. I've already margined to be in a range of 15.4% to 17.3% and earnings to be in a range of 26 to 31 cents per diluted share on a share count of $134 million shares. Despite expected near-term market conditions and lower revenue expectations for the full year fiscal 24, we expect mid to high single digits of revenue growth, which we believe is above industry growth estimates and implies our share gains will continue.

It really happens if you look at.

The way our business the way our business flows.

From an ordering standpoint.

And it's the entire industry there is a buildup towards the end of the quarter.

Most of the orders come in in the last month of the quarter end and literally.

Yes, I would say the last two weeks of the quarter.

When we have a huge a huge pipeline of deals and committed deals.

Our sellers and then the alarm started coming back that Hey, this is going to push.

They've decided.

The decision by and it's really across geographies.

Across industries across verticals, where there was this wave.

Kevin Rhodes: We have also taken recent actions to ensure we align our cost structure with the current level of revenue growth that we expect to achieve. As a result, we believe we are well positioned to deliver strong profitability and improved operating margins during the year. We expect to generate EPS growth of approximately 25% in fiscal 2024. As I noted, we remain committed to long-term double-digit growth, and I see tremendous opportunity for Extreme to grow our business. Accelerate our recurring revenue contribution from subscription and support, and improve our margins and cash flow.

Of messaging coming from our field that deals were going to slip in push at an unusually high level.

That.

It caught us off guard because no.

No one really saw that coming we heard about it.

But but that happened and so there was a there was.

Slipping at the end of the quarter and then as we look forward. Our team has just got a lot more cautious with their call given the environment.

And what we're hearing is that.

There's more scrutiny over budgets more people are getting involved in the purchasing process on.

The projects are still good the projects are still going to happen, maybe theres, a prioritization issue that takes place.

Kevin Rhodes: I look forward to laying out some of our long-term plans, our new long-term plans, at our investor day next week.

But youre seeing more purchasing more financial types a lot of different.

Unknown Executive: And with that, I'll now turn the call back to the operator to begin the Q&A session. Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone, and wait for your name to be announced. To withdraw your question, please press star 1-1 again. We ask that you limit yourself to one question and one follow-up, and return to the Q for additional questions. One moment for our first question.

Players come into the decision making process.

<unk> slowed things down.

And we are not we werent in a situation, where we lost business we were in a situation where.

Our opportunities just moved moved out to the right and.

That happened literally the last two weeks of the quarter a lot of those orders.

Don't really affect the quarter because now we're getting close to a point, where what we booked in a quarter is what we ship.

David Vogt: Our first question comes from David Vogue with DVS. Your line is open. Hey, thank you.

And at the end of the quarter when orders come in you don't turn around that would be kind of more normal backlog with what happens at the end of the quarter the orders come in and they turn into your your your revenue and your shipments for the next quarter and so it was that softness at the very end of the quarter.

Andrew: This is actually Andrew on for David. I wanted to ask you, one of the big issues looking at this industry for some time now, has been the elevated backlog. Certainly, you've had it as well. So, what I'm wondering is, maybe you can help us understand a little bit better how much of the sort of mixed signals that the backlog has been setting to the entire industry is driving your slower outlook versus entirely macro. Can you sort of pull that apart for us and help us understand it?

That caused us to.

To look at it Q2 to be more cautious and conservative in our field teams on the heels of what happened at the end of the quarter felt they should be more cautious with their calls. So that's really it's kind of a combination of those two things that happen.

Edward Meyercord: Yeah, Andrew, I'll jump in. And then Kevin, you can follow up. Andrew, I think we all we think about the backlog and you think about what's happened over the course of the last several quarters. And it's not just extreme, it's the whole industry. There's been a very high level of backlog release into the channel. And so, in terms of how it's affecting current demand, you might say digestion, but effectively, we put a lot of product into the channel.

And then I won't even comment that.

Beyond September 30th like even to October we were still seeing some of the same buying pattern issues in the last 30 days that caused us to also.

Yes, you know what our Q2 revenue would look like leading up to today.

Yes.

Yes, thanks for taking my question.

Eric.

Our next question.

Our next question comes from Timothy Horan with Oppenheimer. Your line is open.

Edward Meyercord: And so, our channel partners are receiving a lot of product and they're moving forward deploying and a very busy deploying networks. And with that focus on receiving an unusual and unusually high amount of product and networking gear, they're really active in deployment mode right now. And I would say, you know, there's and with some of this, they paused some of their purchasing and some of their drawdown for the channel. So, I think that's how that's affecting that's how you should think about this affecting the demand, the current demand equation.

Thanks, guys, Ed when you study past periods of slowdown maybe talking to the channel.

Can this last six months 18 months in these networks run hotter.

Bit longer and.

I know you've been asked a few times, but can you can you just maybe give us a rough guesstimate.

What.

Turning to the lower guide comes from just working down inventory at the channel versus end user demand.

Kind of hearing mixed signals I know, it's very hard to quantify but just a little bit more color.

Kevin Rhodes: As we said, we're calling it an air pocket. This will pass as they deploy the networks, they're going to get back to normal course ordering that will be consistent with normal course demand for networking in the industry. Kevin, do you want to add anything to that? I think you hit it. I think you hit all the points. Okay.

Yes.

It is hard to quantify Tim and thanks for the question, Yes, and I'll give an example, with some of our largest partners.

Yes.

And I'll use I'll pick on.

EMEA and I'll pick on Germany, specifically.

They are having a fantastic year and they've gotten all of this product has been released from backlog and they are they are solely focused and super active in deploying networks for their customers on our behalf.

Andrew: And then just my follow-up on that is just obviously is, you've got backlog working down. You expect it now to normalize in Q4. You've got some very difficult comps in the back half. You know, what is it that gives you the confidence that you're going to see a revenue re-acceleration in the back half to hit your fiscal 24 revenue tariff? Well, Andrew, it's really about what we see in our funnel. We have a very clear picture of opportunities and all those opportunities have kind of a timeline next to them.

Sure.

They are fully consumed and you see their business.

Way off year over year with US. These are an example of a strategic partner with really healthy business and amazing customers.

However, their focus right now is.

As on deploying all that equipment and so their business is off they fully expect business to return.

Andrew: And it's the quality and the quantity and volume of our funnel that gives us the confidence to make the call. As we turned into Q2, Kevin mentioned that our teams became more cautious with their call. Some of the bookings that we would normally see at the end of the quarter didn't happen and with the slowdown as fail cycle, people became a lot more cautious about the call here. A lot of those opportunities landed in the second half of the year.

And so that's why.

We look at with our outlook.

Look we know it's coming back.

It's just there's a near term.

And we're calling it an air pocket for for the channel to deploy.

If I had to put it.

If I could just make up a number and place a guess on how much I would allocate to.

The slowdown of decision, making more people coming into the decision making process by process Budd.

Andrew: These are high quality opportunities. And so I would say that's the, that's the, that's the, that's what's driving the confidence interval. Kevin, I'll give you a shot to jump in as well. Yeah, I mean, as we think about, you know, the quarterly revenue throughout the rest of the year in our guidance for the full year, I mean, obviously, Q4 is the toughest comp that we have with the $365 million last year. But, but we're not calling for accelerating growth over top of that. We think that we're going to hit about mid teens for the full year compared to the full year, 2023.

Unknown Executive: Thanks.

Budgetary constraints pushing versus.

Channel digestion.

Alexander Henderson: One moment for our next question.

Kevin you can jump in but if I had to give it a finger like I'd, probably say half half and half.

I was thinking 60 macro 40 digestion, but somewhere in that.

And Tim the other pieces there historically has been a run rate business.

And.

That run rate business.

Is is not insignificant.

And we knew that run rate run rate is starting to come back which is encouraging to us.

Our anticipation is that there would be a step function and run rate throughout the course of this fiscal year and I think it's that.

Alexander Henderson: Our next question comes from Alex Henderson with Needham. Your line is open. Great.

Run rate is happening more slowly.

We think Thats also a byproduct of what's going on in the channel.

Alexander Henderson: Just a quick clarification on the guide. So if I were to look at the guide for the upcoming quarter, I assume that the vast majority of the swing is in product sales and that this strength of software growth plus the normal normal services growth off of lagging product sales would suggest that overall services quarter to quarter and for the year, we continue to gradually increase over the course of the next three, four quarters.

Yeah, that's great color, so I mean basically used to it.

Distribution is pull out at this point they can't handle any more capacity.

It's maybe half or so.

There is the distribution side, okay and distributions as inventory and then there are channel partners themselves and they're busy and they're saying, okay distributors don't ship me that product yet because I need to finish this project and then I'll take a quick delivery.

For the next project so.

And that flows down distributor buying as well because they are waiting for.

Alexander Henderson: Is that a fair assessment that that's right? That's right. I mean, you know, that's the, I mean, obviously, the attached rate, right, with subscription and support is associated with products. So you'll see a little bit of moderation in the revenue there for subscription and support as it relates to, you know, product being lower. But with the majority of the reduction, you know, in anticipation of revenue for the full year would be on the product side.

What we call pass, but they are waiting for our channel partners.

To draw down on.

Draw down on their inventory. So it's kind of it's just gotten backed up a little bit which is why we're calling it digestion.

It will pass.

It will pass.

Very helpful. Thank you and I would say yes.

We've been we've been here before we've seen this happened before.

It's a quarter.

There are too few quarter phenomenon, but it will pass we factored all this into our revised outlook for the year.

Alexander Henderson: And that's just literally the digestion issue, the macroeconomic people are just taking longer to make decisions and decision cycles or lengthening. And we feel like we're in this air pocket where we think we will come out of it. The question is this, you know, the absorption period, if you will, within the market and when some macro market come back, I think we're seeing this with many companies, you know, across the sector.

And for the quarter.

Okay.

One moment our next question.

Okay.

Our next question comes from Dave Kang with B Riley Your line is open.

Alexander Henderson: Just to be clear, the growth in services is generally driven off of the last- Two years worth of product sales. Therefore, it should continue to increase quarter to quarter over the course of the 24 period, even if it's at a very flatish kind of trajectory. So it's almost all in product sales. That would be our expectation. Okay.

Alright. Thank you good morning, I may have missed it but.

We're product orders the up or down.

Any color on that.

Yeah.

So Dave we haven't really quoted.

<unk> dollar amount for orders from one quarter to another we have tended to say.

Net debt debt orders.

Alexander Henderson: So if that's the case, in order to hit your guidance as given, it sounds like your product sales literally have to be down in the December quarter, and essentially flat for the for the full year, excluding the just printed quarter. Is that also an accurate read?

Been up sequentially or down sequentially et cetera.

Our second quarter, we had a softer quarter because of what we just discussed about the pushing out of some of those.

Those orders and as you think about it a first quarter order that pushes out youre, obviously, not shipping yet and it may get done in Q2, So I would say, yes, we had a softer.

Orders quarter in Q1 than we expected and Thats reflected in our Q2 guidance.

Alexander Henderson: And if that's the case, you know, what what is the mechanics underneath the surface between the inventory drawdown at your channel versus the sell through? So what does the rate of sell through look like, you know, if you were to look at it from the customer perspective as opposed to the two tier channel distribution perspective?

And do you expect similar trends in control second quarter, or you think they're going to rebound.

Yes.

We were we right now I would say our visibility into the second quarter is stronger than it was in the first quarter from a orders perspective, but we're not done with the quarter, yet and so I don't know whether at the end of the year. We'll have the same phenomenon that we had in September.

Edward Meyercord: I mean, first of all, fourth quarter is a long way away right now. We look at just the pipeline. We've got a combination of backlog that is expected for customer request dates in the fourth quarter. So we have that information. We've got the overall pipeline, and we know some of that pipeline relates to existing customers, some of its logos. We assess that pipeline naturally between Q2 and Q3 will build more pipeline for Q4.

With orders pushing again, so that's the challenge if you will that we have right now from a visibility perspective. The macroeconomic is are these sales cycle is going to continue to elongate.

Our thing is going to continue to push where you can't ship it in the quarter.

That's the phenomenon, Kevin Kevin I'll jump in and say that.

Edward Meyercord: And so I would say we throw that all through the machine, and we look at, you know, what we think we're going to achieve for the year, and it's up, but it's up, you know, on a full year basis. You know, that mid, you know, that that single to high, you mid to high single digits for the full year as it relates to Q4. Yes, we've got a tough comp there, as I said, as I mentioned. You know, that could be flatish, you know, in the fourth quarter, but you know, for the full year still up.

From a revenue perspective.

The impact on revenue we feel like.

We hit bottom in the December quarter.

With product orders being up big.

Being up slightly.

But again a lot of those orders now in our environment.

We will spill into the March quarter.

<unk>.

And at the end of the quarter usually.

Edward Meyercord: Yeah, the question really was what's the difference between sell through to customers? And I, what is the underlying customer growth rate? In terms of buying product from your channel, as opposed to the work down of inventory in your to your distribution channel. So, you know, if you were to look underneath the surface here, yes, there's flat product sales, but that is reflective of underlying sell through what percentage of your revenues coming out of the to tier distribution.

Get shipped and wind up shipping in the following quarter. So.

Yes.

Okay.

Does that answer your question Dave.

Yes, and my follow up is.

Regarding your competitors.

Previously you said, you don't typically run into Juniper and Arista.

Can you prevent the risks.

It seems like their enterprise.

Business has been growing nicely in recent quarters are you seeing there.

More.

Yes.

<unk>.

Yes.

Edward Meyercord: So, how much of this is the channel distribution, inventory destocking, and how much of this is, you know, a weakness in underlying demand? I mean, it's hard to choose that and pull that apart naturally. So, we don't have perfect visibility into all that. I would say that are our to tier reseller and distribution, you know, program. Like it's relatively healthy is what I would say like they've got healthy now fully normalized, you know, you know, inventory levels that they have.

We see we never see Arista.

Their enterprise market is very different than our enterprise market I think thats an extension, maybe the large financials and some of the other.

Larger an extension of their cloud.

Datacenter business with larger customers, but in our market it would be very unusual to see Arista.

As it relates to juniper, we see them more frequently.

And juniper is investing.

The enterprise market I think more heavily.

Edward Meyercord: We don't have too much, you know, necessarily in the distribution, you know, level. And we've got our own healthy amount that we have on our own in warehouse. We're looking at it as more end, you know, customer demand challenges right now. This air pocket is more of a end customer demand to be got two wars going on right now, et cetera, et cetera. So, we're just seeing Europe being the most sluggish, I would say, area of any we commented, particularly in Germany, that's the area that's really causing the slowdown is mostly in the European area. Yeah, we're doing well at the pack and the US still continues to be strong, but there's any area. Thanks.

And the verticals, where we play.

I think if you read the tea leaves on my Juniper said I think they are calling the same high single digit.

Growth from a demand perspective.

That we are in the near term.

From a revenue perspective, they are still on loading a lot of backlog.

Okay.

Got it thank you.

Okay.

One moment for our next question.

Yes.

Our next question comes from Christian Schwab with Craig Hallum. Your line is open.

Hey, great. Thanks for taking my question.

No.

Is it safe to assume that backlog is probably almost back to.

Edward Meyercord: One moment for our next question. Our next question comes from Eric Martinuzzi with Lake Street Capital Markets. Your line is open. Yes, open to just a clarification first on the guide for FY24 that mid to high single digit. So we're talking 4% to 9%. I guess you would. Yes. Okay. And then the, I guess the change in demand environment, it seems like up until about maybe six weeks ago. So we were still pretty confidently talking about a mid teens growth rate, not only for FY24, but for FY25.

It somewhat normalized level conversation is returning to kind of pre COVID-19 conversation I'm talking about.

Not at all in our pipeline.

Versus previous conversations in the backlog driving material growth for a material period of time is that fair.

Christian I think its fair to say that.

Our backlog as it relates to distribution.

As normalized but we still have a fair amount of customer backlog that's out there.

Yes.

Yes, I can give an example of like Kroger, we had a very large win with Kroger, they're deploying to all their stores.

They don't necessarily want all of the equipment upfront and once they want they want to time that with their deployment. So we have we have customer request states very specific customer request states.

Edward Meyercord: Was there a particular event or two that you guys can point back to as the market shifting kind of all at once? And you want to cover that? Yeah, Eric, it really happens. If you look at the way our business, the way our business flows from an ordering standpoint, and it's the entire industry, you know, there's a buildup towards the end of the quarter where most of the orders come in in the last month of the quarter.

That is one of one example of many and what we've said and what continues to be the case is that we see the normalization of our backlog at the end of.

Fiscal Q4 this fiscal year.

Yeah, that's right.

Just a follow up on the push outs that you were talking about at quarter end.

Is that is that.

Direct customer push outs or or is that was that unanticipated distribution channel push outs.

Edward Meyercord: And literally, I would say the last two weeks of the quarter when we have a huge pipeline of deals and committed deals are sellers, and then the alarm started coming back that, hey, this is going to push. They decide, you know, the decision by, and it's really across geographies, across industries, across verticals where, you know, there was this wave of messaging coming from our field that deals were going to slip and push at an unusually high level.

Are those were those are customer.

That's right Okay, Great and then my last question.

Turning to 215% topline growth in 'twenty five.

With 30% of your revenue recurring.

It seems like a really strong growth rate.

For product so.

I'm trying to figure out or back into.

What you guys.

Growth assumptions for industry growth.

Versus market share gains.

Edward Meyercord: And that caught us off guard because we, you know, no one really saw that coming. We've heard about it. But that happened, so there was a, it started slipping at the end of the quarter, and then as we look forward, our teams just got a lot more cautious with their call, given the environment. And, you know, what we're hearing is that there's more scrutiny over budgets. More people are getting involved in the purchasing process.

To attain.

<unk> objective.

Well a couple of things I mean, one will go through the long train long range model next Tuesday at our Investor Conference. So we could talk a little bit more about 25 that right now we're not guiding for 25.

I think the biggest point is that recurring revenue will continue to grow youre seeing subscriptions grow 30% right now.

And so we have to.

It's the gift that keeps on giving over the next several years. We think this is an air pocket as we mentioned earlier and so we think that there will be demand coming back towards the end of this year into 2025.

Edward Meyercord: The projects are still good. The projects are still going to happen. Maybe there's a prioritization issue that takes place. But you're seeing more purchasing, you know, more financial types, a lot of different players come into the decision making process. They just slow things down. And, and we are not, we weren't in a situation where we lost business. We were in a situation where our opportunities just moved, moved out to the right.

So that should normalize.

We still have a good like we talked about pipeline.

And we have a building pipeline and so that gives us confidence as well that this is a macroeconomic issue for a period of time and hopefully will abate.

Here within this year, and then 25 should be a normal more spending normal normalized spending year at least that's the visibility we have right now into 2025 and Christian I would point out.

Edward Meyercord: And that happened literally the last two weeks of the quarter. A lot of those orders don't really affect the quarter because now, you know, we're getting close to a point where, you know, what we book in a quarter is what we ship. And at the end of the quarter when orders come in, you know, you don't turn around, you know, that would be kind of more normal backlog with what happens at the end of the quarter, you know, the orders come in and they turn into your revenue and your shipments for the next quarter.

A lot of our confidence comes from funnel and we mentioned that we have double digit funnel growth in terms of the year over year opportunities.

And so.

A lot of the opportunities that are getting pushed out will come to fruition. In addition to new demand. So.

There is a combination of our core business, where we're taking share.

Edward Meyercord: And so it was that softness at the very end of the quarter that they caused us to look at Q2 to be more cautious and conservative. And our field teams, you know, on the heels of what happened at the end of the quarter felt they should be more cautious with their calls. So that's really, it's kind of a combination of those two things that happened. And I would even comment that, you know, beyond September 30th, like even to October, we were still seeing some of the same fine pattern issues, you know, in the last 30 days that that caused us to also assess, you know, what our Q2 revenue would look like leading up to today.

If if Cisco as a market proxy in terms of what they are calling it is kind of low single digit when.

When we take share is a function is how much share appointed market share is over 20% growth for extreme because of our relative size.

And that's in the core business and I also mentioned, we have invested in and we've just rolled out and we're in the early stage of ramping.

Our managed services platform, there's a lot of interest in <unk>.

P.

We're seeing a lot more people turn to MSP.

We've talked about some of our other strategic investments in terms of global security compliance certifications.

Eric Martinuzzi: Yeah, thanks for taking my question.

That that apply in the U S market as well as targeted opportunities abroad.

Eric Martinuzzi: Thanks, Eric.

Timothy Horan: This is our next question. Our next question comes from Timothy Horan, with Oppenheimer, your line is open. Thanks, guys. Edwin, you study past periods of slowdown, maybe talking to the channel. I mean, can this last six months, you know, 18 months from these networks just, you know, runs hotter for a little bit longer. And I know you've been asked a few times, but can you, can you just maybe give us a rough estimate of, you know, what, what percentage of the lower die comes from just working down inventory at the channel versus, you know, end user demand, just kind of hearing mixed signals.

And we have some other interesting opportunities that are really white spaces for us where we haven't played so.

As we look.

And as we look at.

The components of core market, taking share and then we look at new White space investments, where we haven't played before and there are more commercial models. They don't require heavy investment.

But it's more about relationship and go to market and these are these are new for us and Theyre just at the early stages of ramp so those growth rates will be much higher than the market.

And to Kevin's point I would.

Timothy Horan: Yeah, I know it's very hard to quantify, but just a little bit more color thanks. Yeah, it is hard to quantify, Tim. And thanks for the question. Yes, you know, and I'll give an example with some of our largest partners. You know, and I'll use, you know, I'll pick on the me and I'll pick on Germany specifically. They're having a fantastic year. They've gotten all of this product has been released from backlog and they are, they are solely, they're focused and super active and deploying networks, you know, for their customers, you know, on our behalf.

Encourage participation next week at our Investor Conference, because we are going to get into in a lot of detail.

Okay great.

And the last point I'd make is that that subscription line is growing at 30%.

Timothy Horan: They, they, they are fully consumed and, and you know, you see their business is way off year over year with us, you know, these are, you know, an example, you know, strategic partner with really healthy business and amazing customers. However, their focus right now is on is on deploying all that equipment. And so their businesses off, they fully expect business to return. And, and so that's why as you know, as we look at, you know, with our outlook, we know it's coming back.

Alright right.

Yes, I understood that Matt just wanted the market share gain bath.

Thank you.

Directionally I understand what you say.

Great. Thank you.

I appreciate it sure thanks Christian.

Our next question.

Our next question comes from Greg <unk> with West Park Capital. Your line is open.

Thank you.

Looking at your geographic.

Distribution.

Can you hear me.

Yes, we cant we gotcha, Okay gotcha, Okay looking at your.

Global geographic distribution I think.

EMEA was about 40% last quarter I didn't see what it was this slide I have another chance to see it yet but.

Going forward given that EMEA has been.

Timothy Horan: It's just there's a near term. You know, and we're calling it an air pocket for for the channel to deploy. I, if, if I had to put it, if I did just make up a number and and place a guess on how much I would allocate to the slow down and decision making more people coming into decision making process process. You know, budgetary constraints pushing versus channel digestion, you know, I, the cabin, you can jump in, but, you know, if I had to give it a finger like I probably say, you know, half, half and half.

Soft area for you for understandable reasons.

Do you foresee just.

Shifting your sales and marketing focus more back home to the <unk> to the domestic market and maybe the age to Asia Pac markets.

Two kind of offset.

To kind of channel your resources, where the opportunities are still strong from a macro standpoint.

Yes, Greg Greg.

Still hovering around 40% I think it was 41% ish.

Timothy Horan: You know, I was thinking 60 macro 40 digestion, but yeah. And, and 10, the other piece is there historically has been a run rate business. And, you know, that run rate business is, is, is not insignificant. And we knew that run rate run rate is starting to come back, which is encouraging to us. Our anticipation is that there would be a step function and run rate throughout the course of the fiscal year. And I think it's, you know, that, that run rate is, is happening more slowly. We think that's also a byproduct of what's going on in the channel.

We talked about realigning resources and.

And the answer is yes, we are we're actively managing fortunately because of our size and because of the way we manage the business we moved very quickly.

Yes.

Realigning resources to drive our investment behind success, where we see the growth markets.

Within a very short time, when we realized what was going on here with near term demand. We made some quick decisions.

As we pointed out.

And a lot of those decisions were around go to market and we commented on investment in Asia Pacific.

There's a lot of.

Year over year growth in Asia Pacific for Us will be higher.

Edward Meyercord: You know, that's Craig Tuller. So I mean, basically you can do a lot of your distributions is full out at this point. They can't handle any more capacity. It's maybe half a slow down. There's the distribution side. Okay, and distribution is inventory. And then there are channel partners themselves and they're busy and they're saying, okay, distributors, don't ship me that product yet because I need to finish this. And then I'll take the delivery for the next project.

I mean overall.

And.

We're looking at targeted investments for example in federal where we have significant opportunities.

And then other pockets, but your point is spot on.

Yes, we're looking at realigning resources.

Where we can drive growth in the business and we also look at the productivity of our resources that are in the field.

Edward Meyercord: So that, you know, and that slows down distributor buying as well, because they're waiting for what we call POS, but they're waiting for our channel partners, you know, to draw down on draw down on their inventory. So it's kind of it's just gotten backed up a little bit, which is why we're calling it digestion, but it will pass. It will pass.

If sales are off and then we have to realign those resources to make sure we're driving productivity.

Got you and my follow on is Ed you very briefly mentioned what I thought was a very interesting opportunity.

That you are currently in I guess discussions with some carriers about offering a enterprise solution through.

Through wireless carriers can you give a little more color on that.

Edward Meyercord: Very helpful. Thank you. And I would say, yes, we've been here before we've seen this happen before, you know, it's a quarter, you know, a quarter to few quarter phenomenon, but it will pass. We've we factored all this into our revised outlook for the year and for the quarter.

Yes.

We'll talk more in detail next week at our Investor Conference, but the bottom line is that we have.

We have some strong relationships with some very large service providers.

We are satisfied with our current networking relationships.

And there has been a kind of a I'd say mutual outreach.

Dave Kang: One moment for our next question. Our next question comes from Dave Kang with B. Riley. Your line is open. Thank you. Good morning. I may have missed it, but we're product orders up or down any any color on that. So Dave, we haven't really quoted, you know, any dollar amount for orders from one quarter to another. We have tended to say, you know, that that orders, you know, have been up sequentially or down sequentially, etc.

We see some creative ways to work with them to help them drive the profitability of their business.

There's a lot of interest in this.

Still early innings, but the volumes and potential size of the opportunities are quite large and.

So yes, there is an opportunity for us to work with them in a way where they can enhance and drive profitability.

And kind of reinvigorate some of their enterprise sales.

By replacing I'd say, maybe the older larger.

Networking vendors with extreme.

Dave Kang: And in our second quarter, we had a softer quarter because of what we just discussed around the pushing out of some of those those orders. And as you think about it, you know, a first quarter order that pushes out, you're obviously not shipping it. And it may get done in Q2. So I would say yes, we had a softer orders quarter in Q1 than we expected. And that's reflected here, you two guidance.

And we've got a customized solution that we're working on and we'll share more details at Investor day.

Thank you.

Thanks, Greg.

Our next question.

As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced our next question comes from Mike Genovese with Rosenblatt Securities. Your line is open.

Dave Kang: And do you expect similar trends in the second quarter or you think they're going to rebound? We were we right now, I would say, our visibility into the second quarter is stronger than it was in the first quarter from a orders perspective, but, you know, we're not done with the quarter yet. And so, you know, I don't know whether at the end of the year, you know, we'll have the same phenomenon that we had.

Great. Thanks.

Lot of my questions have been asked already questions about.

Youre sort of new go to market initiatives and confidence that orders will come back. So I'll just add on that kind of summarized those comments for us.

Again, and then my second question, which I'll ask now is just if you could talk about margins.

Despite the revenue pie if.

So looking for a pretty pretty good EPS growth. So just sort of go through those dynamics of what we should expect for margins a little bit more please.

Dave Kang: And in September with with orders pushing again. So that's the challenge, if you will, that that we have right now with visibility perspective, the macro economic is, you know, are these sales like was going to continue to elongate. You know, are things going to continue to push where you can't ship it in the quarter? That's that's the phenomenon. Yeah, Kevin, I'll jump in and say that, you know, that from a revenue perspective, the impact on revenue, we feel like.

Sure.

Yes.

What we're doing.

Mike.

What we're doing in the core business to take share.

My comments I made a point of commenting on.

Whats what matters the most in the market overall right now and networks are inherently complex and in.

Dave Kang: We hit bottom in the December quarter with product orders being up, you know, being up slightly. But again, a lot of those orders now in our environment, you know, we'll spill into the March quarter orders that they come in at the end of the quarter usually don't get shipped and wind up shipping in the following quarter. So does that, does that, does that answer your question, Dave? Yes, yes, and my follow-up is, are we going to your competitors?

In the enterprise space people are trying to.

Come to grips with how do we simplify how do we simplify the environment and how do we make sure that we have flexibility going forward and we don't have a vendor lock situation, where we get kind of stopped in a certain technology.

And do we have modern networking tools and today extreme is by far.

The simplest in terms of our solutions.

Are the most flexibility and.

And we have.

The most modern tools in terms of modern networking tools. So we become.

Dave Kang: Previously, you said you don't typically run into Jennifer and the risk, Jennifer and the risk seems like they're enterprise business has been growing nicely in recent quarters. Are you seeing them more in your markets? We never see a risk to their enterprise market is very different than our enterprise market. I think that's an extension, maybe the large financials and some of the other larger an extension of their cloud data center business with larger customers, but in our market, it would be very unusual for us to see a risk as it relates to Juniper, we see them more frequently and Juniper is investing in the enterprise market, I think more heavily in the verticals where we play.

A very attractive alternative so our share gain profile and when we're winning the kind of accounts that we're winning with the kind of names that were winning for references.

That bodes very well for us and our customer names.

Support our brand and support us in building our brand in the marketplace. So that's just a core market market share gains.

You'll hear more about that but we have a ton of these larger opportunities are behind us and it's kind of success begets success.

In terms of the new the new market opportunities.

A lot of enterprise customers don't want to be in the networking business.

So they want service provider or managed service providers, which are a lot of people on our channel to provide a managed service. The problem with managed services is that the platforms are really complicated and difficult to manage in a managed service provider has to have so many interfaces into so many different clouds and into somebody does.

Dave Kang: I think if you read the two leads on what Juniper said, I think they're calling the same high single digit growth from a demand perspective that we are in the near term. From a revenue perspective, they're still unloading a lot of backlog. Got it.

Dave Kang: Thank you.

Christian Schwab: One moment for our next question. Our next question comes from Christian Swabs with Craig Hallam. Your line is open. Great. Thanks for taking my question.

Christian Schwab: So is it safe to assume that backlog is probably almost back to somewhat normalized level since the conversation is returning to kind of pre COVID conversation, you know, talking about a funnel and a pipeline versus previous conversations of the backlog driving material growth for a material period of time. Christian, I think it's fair to say that our backlog is it relates to distribution is his normalize, but we still have a fair amount of customer backlog that's out there.

Christian Schwab: And I can give an example of like, you know, Kroger, we had a very large win with Kroger, they're deploying to all their stores. First, they don't necessarily want all the equipment, you know, upfront at once, they want to they want to time that with their deployment. So we have we have customer request dates, very specific customer request dates. That is one of one example of many.

Okay. So we're excited about that.

We are investing in fed Sir it's it's an area that we had under invested in previously your resources that we've hired did have uncovered some very targeted specific opportunities that were that were pursuing that that open up you know much higher than than normal industry growth opportunities. There. We also <unk>.

Christian Schwab: And what we've said and what continues to be the case is that we see the normalization of our backlog at the end of fiscal cue for this fiscal year. Just to follow up on that, the pushouts that you were talking about in a quarter-randed, you know, is that direct customer pushouts or is that was that unanticipated distribution channel pushouts? Those are customer, yeah. That's right, okay, great.

And Asia Pacific, where we have been rebuilding that team we have very strong leadership, there and we see big opportunities and and verticals like hospitality.

And and and we've had a massive.

The largest deal ever that we've won in in Asia Pacific 10 million dollar deal in Indonesia.

We can build on that success, we're having a lot of success right now in Japan.

Christian Schwab: And then my last question, you know, a return to to 15% top line growth, and in 25, with, you know, 30% of your revenue recurring, seems like a really strong growth rate for products. So, I'm trying to figure out or back into, you know, what you guys' growth assumptions for industry growth is versus market share gains to attain that growth. Well, a couple of things.

Maria where we've been historically strong we have some some really large opportunities with some of the large players. There. So those are the areas in terms of managed service this global security and certification the private offer as well as Asia.

Asia Pacific investments.

The last thing that we're doing is we're we're about 66% of our our networking gear is is licensed and and runs in cloud.

And we have a plan to make that 100%. So we see accelerated growth in subscription.

As we build out our extreme cloud not just a cloud management platform or or a management tool, but an extreme cloud platform is a service orchestrator and we'll talk about that investor day as well.

Edward Meyercord: I mean, one, we'll go through the long train, long range model next Tuesday, right, at our investor conference so we can talk a little bit more about 25 that right now we're not guiding for 25. I, you know, I think the biggest point is that recurring revenue will continue to grow. You're seeing subscriptions grow 30% right now, and so we have to, you know, that's the gift that keeps on giving, you know, over the next several years.

[laughter].

But that was a lot of color affects place for that and then just on the margins.

Talk more about how the bottom line here goes a lot faster.

Edward Meyercord: We think this is an air pocket, as we mentioned earlier, and so we think that there will be demand coming back, you know, towards the end of this year into 2025. So, so that should, you know, don't realize and we still have a good, like we talked about pipeline, and we have a building pipeline. And so that gives us, you know, confidence as well, that this is a macroeconomic issue for a period of time and hopefully will, you know, a page, you know, here within this year, and then 25 should be a normal, you know, more spending, you know, normal, normalized spending year, at least that's that's the disability we have right now into 2025.

Okay, you want me to cover that one go for it.

Yeah, I I think I think like you know so <unk>, it's kinda rooted in their planning process right with when we develop our annual planning process, we look at discretionary spend and and what that isn't there fixed <unk> and we understand that the lovers, we need to pull you know if we need to pull back we can pull back you know.

On hiring we can pull back you know on discretionary spending like if we see you know the business environment changing we were able to act quickly which was great for US you know in the quarter to this kind of evolving market environment. So that's still enabling us to have a good you know second <unk>.

Edward Meyercord: And Christian, I had point out we, you know, a lot of our confidence comes from funnel, and we mentioned that we have double digit funnel growth in terms of the year of year opportunities. And so, you know, a lot of the opportunities that are getting pushed out, you know, will come to fruition in addition to new demand. So, there's, there's a combination of our core business where we're taking share. If Cisco is a market proxy in terms of what they're calling is kind of low single digit, when we take share, the function is how much share appointed market shares is over 20% growth for extreme because of our relative size.

Order from an E. P. S perspective, and obviously helps us for the rest of the year as well. So you know I would say you know, we we feel confident in our ability to achieve that 25 per cent growth in EPS. This year, there's not many companies out there where you can you know say hey, even if your top line is is is you know a single too.

Hi, team's revenue growth, you're still delivering you know 25 per cent profitability and we've been delivering you know high levels of growth and profitability for quite some time for several years and so we think that that is an important element for shareholders to look at and realize that this company is gonna get through this air pocket <unk>.

Edward Meyercord: And that's in the core business. And I also mentioned, you know, we, we have invested and, and we've just rolled out where the early stage of ramping a managed services platform. There's a lot of interest in, in MSP. We're seeing a lot more people turned to MSP. We've talked about some of our other strategic investments in terms of global security compliance certifications that apply in the US market as well as targeted opportunities abroad.

Still deliver good strong profit growth. This year and then next year will turn back into a more you know <unk> company and deliver that March and you know as well so that that cycle.

A drink can I just have one quick follow up there could you just talk a little bit of you're sort of gross margin birth.

<unk> comments submitted to me focus more on the on the operating expenses.

Edward Meyercord: And we have some other interesting opportunities that are really white spaces for us where we haven't played. So, as, as we look, as we look at the components of core market taking share, and then we look at new white space investments where we haven't played before. And there are more commercial models. They don't require heavy investment. But it's more about relationship and go to market. And these are, these are new for us. And they're just at the early stages of ramp. So those growth rates will be much higher than the market.

Quicker.

Gross margin to come as well.

Yeah, I mean, we're we're gonna continue to look at ways of how we can just continue to eh you expand our gross margin for sure. Mike I think we originally said that we were expecting it to be somewhere in the 62 per cent range for the full year, we're not backing off that we think that we will continue to see you know improvement throughout the year.

I don't know if it's going to be 19 basis points sequentially every single quarter, but we are expecting that we can continue to improve our gross margins uhm throughout the year, that's gonna help yep Yep and my <unk>, what's <unk>, what's implied what's implied in at 62.

Christian Schwab: And at Kevin's point, I would encourage participation next week at our investor conference, because we're going to get into it in a lot of detail. Okay, great. And the last point I could make is that that subscription line is going at 30%. Right. No, I understood that math. I just wanted the market share gain math, which I think you. Directly understand what you're saying. Great. Thank you.

Per cent gross margin is obviously, we end the year over that and more of a 63 per cent range. So.

Unknown Executive: Thanks, Chris. One moment for our next question.

My life's too gross margins, we continue to see gross margins stepping here as we come out of supply chain.

And if we see you know some some of the mixed dynamics as it relates to subscription Sarah.

The point that yep.

Alright, well quite quite <unk>.

Thank you that concludes the question and answer session. At this time I would like to turn it back to admire card for closing remarks.

Okay, well first of all thanks, everybody for participating.

Greg Mesniaff: Our next question comes from Greg Mesniaff, with Best Part Capital. Your line is open. Yes, thank you. Looking at your geographic distribution, can you hear me? Yes, we got you. Okay, got you. Okay, looking at your global geographic distribution, I think Eméa was about 40% last quarter. I didn't see what it was this slide. I have another chance to see it yet.

<unk>, we appreciate your interest in extreme.

I I want to shout out, we get a lot of employees and customers and partners that join as well so I <unk>.

Place, where all the artwork and and you know customers and partners for.

The the the business relationship and the commitment to extreme as far as everyone is concerned here, we invite everyone to tune in to Investor Day I.

Edward Meyercord: But going forward, given that Eméa has been a soft area for you, for understandable reasons, do you foresee just shifting your sales and marketing, focus more back home to the domestic market and maybe to Asia-Pac markets to kind of offset, you know, to kind of channel your resources where the opportunities are. They're still strong from a macro standpoint. Yeah, Greg, Greg, Eméa is, you know, still hovering around 40%, I think it was, you know, 41%.

We we have a lot of opportunities if we're gonna go into a lot of detail around the core market the growth opportunities as well as kind of help with this looks like from a financial perspective. So we invite everyone to participate there and we hope to see you there I'll reiterate.

Yeah, we see this as a short term phenomenon and yeah, we remain committed longterm delivering a double digit growth in the top line and obviously what that means with operating leverage the bottom line.

Thanks, everybody in and have a great day.

You for your participation in today's conference. This does conclude the program you may now disconnect.

Edward Meyercord: If we talked about realigning resources and the answer is yes, we're actively managing, of course, because we're size and because of the way we manage the business, we move very quickly. And, yeah, we're realigning resources to drive our investment behind success, you know, where we see the growth markets. Within a very short time when we realized what was going on here with the year-term demand, we made some quick decisions as we pointed out.

Mmm Mmm [music].

Edward Meyercord: And a lot of those decisions were around go-to-market. And we commented on investment in Asia-Pacific. There's a lot of, you know, year-over-year growth in Asia-Pacific for us will be higher, you know, up on the mean overall. And, you know, we're looking at targeted investments, for example, in federal where we have significant opportunities and in other pockets. But your point is spot on. You know, yes, we're looking at realigning resources, you know, where we can drive growth in the business. And we also look at the productivity of our resources that are in the field. And if, if, if sales are off, and then we have to realign those resources, make sure we're driving productivity. Gotcha.

Edward Meyercord: And my follow-on is Ed, you very briefly mentioned what I thought was a very interesting opportunity that you are currently in, I guess, discussions with some carriers about offering an enterprise solution through wireless carriers. Can you give a little more color on that? Yeah, I think we'll talk more in detail next week at our investor conference, but the bottom line is that we have some strong relationships with some very large service providers who are just satisfied with current networking relationships, and there's been a mutual outreach, we see some creative ways to work with them to help them drive the profitability of their business.

Edward Meyercord: There's a lot of interest in this. It's still early innings, but the volumes and potential size of the opportunities are quite large. And so yeah, there's an opportunity for us to work with them in a way where they can enhance and drive profitability.

Greg Mesniaff: And kind of reinvigorate some of their enterprise sales by replacing, you know, I'd say maybe the older larger networking vendors with extreme, and you know, we've got a customized solution that we're working on and we'll share more details and investor day. Thank you. Thanks, Greg.

Mike Genovese: Our next question. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Our next question comes from Mike Genovice with Rosenblatt Securities. Your line is open. Great, thanks. A lot of my questions have been asked already. You know, questions about your sort of new go to market initiatives and confidence that orders will come back. So I'll just want to kind of summarize those comments for us.

Mike Genovese: Again, and then my second question, which I'll ask now is just if you could talk about margins, you know, despite the revenue cut, so looking for pretty, pretty good EPS growth. So just sort of go through those dynamics of what we should expect from margins a little bit more place. Thanks. Sure. If so, you know, there's what we're doing. Mike, there's what there's what we're doing in the core business to take sugar.

Mike Genovese: You know, in my comments, you know, I made a point of commenting on what, what matters the most in the market overall right now and networks are inherently complex. And in the enterprise space, people are trying to come to grips with how do we simplify, how do we simplify the environment and how do we make sure that we have flexibility going forward. And we don't have a vendor lock situation where we get kind of stopped in a certain technology.

Mike Genovese: And do we have modern networking tools and today extreme is by far the simplest in terms of our solutions for the most flexibility and we have the most modern tools in terms of modern networking tools. So we've become a very attractive alternative. So our our share game profile. And when we're winning the kind of accounts that we're winning with the kind of names that we're winning for references. That that that that votes very well for us and our customer names.

Mike Genovese: Support our brand and support us in building our brand in the marketplace. So that's just core market market share games. You'll hear more about that, but we have a ton of these larger opportunities behind this, and it's kind of success begins success. In terms of the new market opportunities, a lot of enterprise customers don't want to be in the networking business. And so they want service provider or managed service providers, which are a lot of people on our channel to provide a managed service.

Mike Genovese: The problem with managed services is that the platforms are really complicated and difficult to manage. And a managed service provider has to have so many interfaces into so many different clouds and into so many different portals and the billing is complicated, etc. So we set out over a year ago to build a managed service platform, a modern managed service platform that based on simplicity. And we're, we've come up with what is a very exciting platform that greatly simplifies the ability to provide a managed service for a networking perspective and all the elements that we're providing.

Mike Genovese: And so there's been a huge amount of excitement around it. It does take a while to stand up. We started off with a goal of five service providers. We mentioned now we're seven. We think that's going to scale up quite a bit. And we're going to make it much easier for a managed service provider to deliver a networking experience far easier. And then with a simplicity of licensing, etc. The whole package will make it easier.

Mike Genovese: So we're optimistic there. It doesn't really affect fiscal 24 much, but it'll start to play a role in fiscal 25. We talked about the private subscription offers is some very large service providers to support them and their enterprise business. Very early innings here, we have a couple of large players were talking to one specifically, it has a massive backlog and what pipeline of opportunities. So we're excited about that. We are investing in Fed certs.

Mike Genovese: It's an area that we had under invested in previously. We have new resources that we've hired. Bit of uncovered some very targeted specific opportunities that we're pursuing that open up much higher than normal industry growth opportunities there. We also mentioned Asia Pacific where we have been rebuilding that team. We have very strong leadership there. And we see big opportunities and and verticals like hospitality. And we've had a massive, you know, the largest deal ever that we've won in an Asia Pacific $10 million deal in Indonesia.

Mike Genovese: We can build on that success. We're having a lot of success right now in Japan, a career where we've been historically strong. We have some really large opportunities with some of the large players there. So those are the areas in terms of managed service, this global security and certification, the private offer as well as Asia Pacific investments. The last thing that we're doing is we're about 66% of our networking gear is licensed and runs in cloud.

Mike Genovese: And we have a plan to make that 100%. So we see accelerated growth and subscription. As we build out our extreme cloud not just a cloud management platform or a management tool, but an extreme cloud platform as a service or a administrator. And we'll talk about that on investor day as well. That was a lot of color. Thanks for that. And then just on the margins, you know, talk more about how the bottom line here grows about faster than the top.

Mike Genovese: Hey, when we cover that one. Go for it. Yeah, I think I think like, you know, so so our place kind of rooted in our planning process right when when we develop our annual planning process, we look at discretionary spend. And what that is and there are fixed spend and we understand that the levers we need to pull, you know, if we need to pull back, we can pull back, you know, unhiring, we can pull back, you know, on discretionary spend and the like.

Mike Genovese: If we see, you know, the business environment changing, we were able to act quickly, which was great for us, you know, in the quarter to this kind of evolving market environment. So that's still enabling us to have a good, you know, second quarter from an EPS perspective. And obviously helps us for the rest of the year as well. So, you know, I would say, you know, we we feel confident in our ability to achieve that 25% growth in EPS this year.

Mike Genovese: There's not many companies out there where you can, you know, say, hey, even if you're top line is is is, you know, single to high teens, revenue growth, you're still delivering, you know, 25%, you know, profitability. And we've been delivering, you know, high levels of growth and profitability for quite some time for several years. And so we think that that, you know, is an important element for shareholders to look at and realize that this company is going to get through this air pocket, still deliver, you know, good strong profitability growth this year.

Mike Genovese: And then next year we'll turn back into a more, you know, mid teens growth, you know, company and deliver that margin, you know, as well. So that's the goal. Greg, can I just say one quick follow up there? Can you just talk a little bit of, you know, sort of gross margin versus operating margin? The comments seem to me for the poor on the operating expenses? Is it gross margin to come as well?

Mike Genovese: Yeah, I mean, we're going to continue to look at ways of how we can continue to expand our gross margin for sure Mike. I think we originally said that we're expecting it to be somewhere on the 62% range. For the full year, we're not backing off that. You know, we think that we will continue to see, you know, improvement throughout the year. You know, I don't know if it's going to be 90 basis points sequentially every single quarter, but we are expecting that we continue to improve our gross margins, you know, throughout the year.

Mike Genovese: That's going to help. Yeah. And Mike was what's implied was implied in a 62% gross margin as obviously we end the year. You know, over that. And more of a 63% range. So I think it relates to growth margins. We continue to see gross margin stepping here as we come out of supply chain. You know, as we see some of some of the mixed dynamics, is it really just a subscription to the point yet? Yep. Sorry, well, thanks for the answers. Thank you.

Unknown Executive: That concludes the question and answer session.

Edward Meyercord: At this time, I would like to turn it back to Ed Meyer, for closing remarks. Okay, well, first of all, thanks everybody for participating in the poll. We appreciate your interest and extreme. I want to shout out. We get a lot of employees and customers and partners that join as well. So I want to thank employees for all the hard work and, you know, customers and partners for the business relationship and the commitment to extreme.

Edward Meyercord: As far as everyone is concerned here, we invite everyone to tune in to investor day. I, we have a lot of opportunities. We're going to go into a lot of detail around the core market, the growth opportunities as well as kind of help what this looks like from a financial perspective. So we invite everyone to participate there. And, and we hope to just see you there.

Edward Meyercord: I'll reiterate. We see this as a short term phenomenon. And, you know, we remain committed long term to delivering on double digit growth from the top line. And obviously what that means with operating levers to the bottom line.

Unknown Executive: Thanks everybody and have a great day. Thank you for your participation in today's conference.

Unknown Executive: This does conclude the program. You may now disconnect. Thank you.