Q2 2024 Extreme Networks Inc Earnings Call

[music].

Okay.

Good day, and thank you for standing by and welcome to extreme networks second quarter fiscal year 'twenty 'twenty four 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 to ask a question. During the session you will need to first of all one one on your telephone you will dug in automotive Mr. Advising Yohan. This race. Please note that today's conference is being recorded I will now.

And the conference over to your Speaker host Stan Koffler, Vice President corporate strategy Investor Relations. Please go ahead.

Thank you Olivia and good morning, everyone and welcome to extreme networks second quarter 2024 earnings Conference call.

I'm staying koelzer, Vice president of corporate strategy and Investor Relations with me today are extreme networks', president and CEO, Edmar cord, and executive Vice President and CFO, Kevin Rhodes.

We just distributed a press release and filed an 8-K detailing extreme networks' financial results for the quarter for.

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. 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.

Caution you not to put undue reliance on these forward looking statements as they involve risks and uncertainties that can cause actual results to differ materially from those anticipated by these statements.

These risks are described in our risk factors in the 10-K report for the period ended June 32023, and subsequent 10-Q reports 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 remarks, we will take your questions.

Now I will take the turn the call over to extremes, President and CEO at <unk>.

Thank you Stan and thank you all for joining us this morning.

Our second quarter results were in line with our previously announced revised Q2 outlook. We did have some highlights in the quarter SaaS AOR grew 37%, which reinforces the value of our differentiated cloud platform. We have 44 customers who spent over $1 billion on extreme solutions demonstrating both cusp.

For our attention and our ability to take new logos larger competitors, a gross profit of 62, 5% showing continued improvements and the benefit of a higher mix of high margin recurring revenue.

At a high level the networking industry is exiting the final stage of the Covid induced era of supply chain constraints, which has significantly impacted our business.

We've made the conscious decision to put channel digestion behind us in the March quarter.

Our distributors and partners have lowered inventory purchases, which we expect to accelerate in the third quarter.

We expect to emerge in the fourth quarter at a much more normalized level of revenue and earnings.

Our bookings our bookings trends and funnel of new opportunities are strong indicators of customer demand while larger deals are still experiencing elongated sales cycles, particularly in North America, we continue to win against the competition on a bookings basis with an uptick in new logos.

EMEA business has stabilized and grew from the prior year at APAC bookings continued to grow over the prior year.

In addition to sequential and year on year funnel growth. We grew the number of transacting partners accounts and deal volume during the quarter.

These trends and the expanded go to market opportunities give us confidence that we are positioned for a return to meaningful growth in fiscal 'twenty five.

We've attracted a growing list of 14 managed service provider partners exiting the second quarter with seven already driving transactions.

We're positioned to expand our MSP footprint as partners are drawn to the simplicity of one cloud the flexibility of our unified hardware and our unique consumption billing model, we make it simple for these service providers to deliver seamless high quality networking experience to their customers.

We've also made inroads establishing a private subscription offer through a highly targeted list of large service providers as noticed as.

As noted at our November Investor Day. This market segment opens a $5 billion addressable market.

In November we introduced extreme cloud Universal's <unk>, the first network security offering to integrate network application and device access within a single solution. This helps move organizations to a zero trust policy for all devices across the network. This combined with our industry.

Leading campus fabric solution extends our value proposition in helping customers, both manage and secure their networks.

Yesterday, we launched new Wi Fi access points and the 4000 series Universal switches designed to help highly distributed enterprise organizations create improved network connectivity security and application performance.

Both of these new cloud managed platforms leverage AI ops and machine learning to deliver faster remediation and enhanced network visibility.

These new products also integrate well with extreme cloud Universal's TNA to enhance network security posture.

The integration of AI security and analytics into a single platform is a key differentiator for as extreme as it allows us to bring greater simplicity and flexibility for customers.

This is why we continue to win large deals with manufacturers like LG energy solutions, leading health care facilities like NHS Trust hospitals in the U K educational institutions like London, South back to University lead spec Ed in Kingston universities, and large venues like Wells Fargo Center and <unk>.

Canada Life Center.

I've made previously announced leadership changes to streamline and strengthen our go to market capabilities.

Earlier this month Norman Rice was appointed as our Chief commercial officer and is now focused on driving revenue growth and leading the company sales partner in services organizations.

We successfully built our go to market sales motions in stadiums venues driving large opportunities with horizon and Kroger and it has been at the forefront of driving our new commercial opportunities with large service providers.

Valuable experience managing revenue operations with deep knowledge of our complex supply chain environment.

Our chief product and technology officer in the field, who Hari is focus on increasing our SaaS revenue and his newly mentioned role as our GM of our subscription business.

Operator: Good day, and thank you for standing by. Welcome to Extreme Network's second 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. To ask a question during the session, you will need to press star 1 on your telephone.

We've also deepened our bench of SaaS expertise on the executive team over the past six months with the additions of our new Chief Marketing Officer Monica Kumar in December and CFO, Kevin Rhodes last may the alignment of the team is crucial to helping accelerate growth and capture more share.

Stan Kovler: You will then hear an automatic message if your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Stan Kovler, Vice President of Corporate Strategy and Best Relations. Please go ahead. Thank you, Livia, and good morning, everyone.

The extreme brand continues to get elevated in the marketplace through our customer wins and differentiated technology that creates more simplicity and flexibility across complex networking environments.

Stan Kovler: Welcome to Extreme Network's second quarter 2024 earnings conference call. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations. With me today are Xtreme Networks President and CEO Ed Meyercord and Executive Vice President and CFO Kevin Rhodes.

Our promise of one network, one cloud remains a competitive differentiator.

One network is underpinned by our universal hardware highlighted by campus fabric, which has unparalleled campus security benefits that allows users to segment networks 10 times faster than any competitor.

Stan Kovler: 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 extremenetworks.com, along with our earnings presentation. Today's call and our discussion may include forward-looking statements based on our current expectations about Xtreme'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.

One cloud offers customers modern networking tools with built in AI ops and we're unique because we're the only provider to offer cloud choice, whether that's public private hybrid or edge.

We're winning deals based on helping customers find new ways to deliver better outcomes, such as increased productivity reduced opex or securing their business.

Simplicity and flexibility of one network one cloud remains a competitive differentiator, particularly at a time when major competitors have created complexity with disjointed solutions and uncertainty in their long term rationalization of products and solutions, we remain the only pure play networking company with it.

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 to differ materially from those anticipated by these statements. These risks are described in our risk factors in the 10K report for the period ended June 30th, 2023, and subsequent 10Q reports 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 remarks, we will take your questions. Now I will turn the call over to Xtreme's president and CEO, Ed Meyercord. Thank you, Stan, and thank you all for joining us this morning. Our second quarter results were in line with our previously announced revised Q2 outlook. We did have some highlights during the quarter.

Differentiated and integrated portfolio and a clear road map.

We believe our exposure to the fastest growing areas in the networking market share gains and new go to market partnerships provide ample growth opportunities to drive double digit growth in the long term.

We're forecasting market share gains with targeted partners leveraging the strength of our unique solutions for the enterprise.

With that I'd like to turn the call over to our CFO, Kevin Rhodes to walk us through the results and guidance.

Thanks, Ed.

Lower revenue in the second quarter, we improved our gross margins sequentially and optimized our operating expenses to maintain a healthy operating margin profile.

Edward B. Meyercord: SAS AOR grew 37%, which reinforces the value of our differentiated cloud platform. We have 44 customers who spent over $1 million on extreme solutions, demonstrating both customer retention and our ability to take new logos from larger competitors. And gross profit is 62.5%, showing continued improvements and the benefit of a higher mix of high-margin recurring revenue. At a high level, the networking industry is exiting the final stage of the COVID-induced era of supply chain constraints, which has significantly impacted our... We've made the conscious decision to put channel digestion behind us in the March quarter. Our distributors and partners have lowered inventory purchases, which we expect to accelerate in the third quarter.

Our EPS was therefore impacted less than our revenue shortfall in the quarter.

In the second quarter, we took proactive action that enabled us to protect our profitability, while continuing to invest in our strategic initiatives.

We will continue to focus on aligning our cost structure accordingly, as we navigate the second half of our fiscal year let.

Let me get into the numbers.

Second quarter revenue of $296 4 million down 7% year over year and was in line with our revised outlook.

Product revenue of $186 6 million.

So 16, 5% year over year, reflecting continued channel digestion.

Edward B. Meyercord: We expect to emerge in the fourth quarter at a much more normalized level of revenue and earnings. Our bookings trends and funnel of new opportunities are strong indicators of customer demand. While larger deals are still experiencing elongated sales cycles, particularly in North America, we continue to win against the competition on a bookings basis with an uptick in new logos.

<unk> sales cycles that are impacting the networking industry.

These trends are consistent across both switching and wireless products.

Our product backlog has normalized this quarter earlier than we initially anticipated.

Bookings approximated our product revenue for the first time in four quarters.

In fact, our bookings trends were positive in both EMEA and APAC, where each grew double digits year over year.

Edward B. Meyercord: Our EMEA business stabilized and grew from the prior year, and APAC bookings continue to grow over the prior year. In addition to sequential and year-on-year funnel growth, we grew the number of transacting partner accounts and deal volume during the quarter. These trends and the expanded go-to-market opportunities give us confidence that we are positioned for a return to meaningful growth in Fiscal 25. We've attracted a growing list of 14 managed service provider partners exiting the second quarter, with seven already driving transactions. We're positioned to expand our MSB footprint as partners are drawn to the simplicity of one cloud, the flexibility of our unified hardware, and our unique consumption billing model. We make it simple for these service providers to deliver seamless, high-quality networking experiences to their customers.

From a vertical perspective, while total bookings fell slightly both quarter over quarter and from the prior year, our healthcare education manufacturing and transportation Slash logistics vertical markets grew from the prior year.

We are encouraged by this level of customer activity, which informs our view that we will be able to get channel digestion phase behind us as quickly as possible.

SaaS and.

Recurring revenue was a bright spot in our quarter.

SaaS AAR grew 37% year over year to $158 million.

Driven by the strength of our renewals and Activations previously shipped products <unk>.

Subscription deferred revenue was up 32% year over year to $246 million.

As we ship products from backlog, it's generating a tailwind for SaaS growth.

Total subscription and support revenue was $110 million.

Up 16% year over year.

This growth was largely driven by the strength of our cloud subscription revenue up 39% year over year.

Recurring revenue continues to be a positive at extreme.

Edward B. Meyercord: We've also made inroads by establishing a private subscription offer through a highly targeted list of large service providers. As noted at our November Investor Day, this market segment opens a $5 billion addressable market. In November, we introduced ExtremeCloud Universal's ETNA, the first network security offering to integrate network application and device access within a single solution.

Total recurring revenue of $101 million grew 14% year over year, and 6% sequentially to now 34% of total revenue.

Based on our current outlook, we expect recurring revenue to account for approximately 35%.

Full fiscal 2024 year revenue.

The growth in cloud subscriptions and maintenance drove the total deferred revenue to $549 million.

Edward B. Meyercord: This helps move organizations to a zero trust policy for all devices across the network. This, combined with our industry-leading campus fabric solution, extends our value proposition in helping customers both manage and secure their network. Yesterday, we launched new Wi-Fi 7 access points and the 4000 series universal switches designed to help highly distributed enterprise organizations create improved network connectivity, security, and application performance. Both of these new cloud-managed platforms leverage AI operations and machine learning to deliver faster remediation and enhance network feasibility.

Up 23% year over year and 5% sequentially.

Gross margin was 62, 5% up 140 basis points from the prior quarter and up 400 basis points compared to the prior year ago quarter.

This is the third quarter in a row that we've achieved 60 plus percent gross margin, which has proven to be an achievable level for extreme at normalized scale.

We attribute this to improvements in mix due to the higher contribution of subscription and support revenue and an improvement in supply chain and distribution related costs.

Our second quarter operating expenses were $141 million down $12 million from $153 million in the first quarter and up slightly from $139 million and.

In the year ago quarter.

We plan to take additional actions to further optimize our operating expenses to the level of revenue we expect to achieve.

Edward B. Meyercord: These new products also integrate well with Xtreme Cloud Universal's ZTNA to enhance network security policy. The integration of AI, security, and analytics into a single platform is a key differentiator for Xtreme, as it allows us to bring greater simplicity and flexibility for customers. This is why we continue to win large deals with manufacturers like LG Energy Solutions, leading healthcare facilities like NHS Trust Hospitals in the UK, educational institutions like London South Bank University, Leeds Beckett, and Kingston Universities, and large venues like Wells Fargo Centre and Canada Life Centre. I've made previously announced leadership changes to streamline and strengthen our go-to-market capabilities. Earlier this month, Norman Rice was appointed as our Chief Commercial Officer and is now focused on driving revenue growth and leading the company's sales, partner, and services organization.

Second half of fiscal 2024 in order to preserve our margin structure in the fourth quarter and into fiscal 2025.

Operating margin for the second quarter was 14, 8% down from 17, 7% and similar to 14, 9% in the prior year quarter.

This was the sixth quarter in a row of double digit operating margins also an achievable level for the company at normalized scales.

All in second quarter non-GAAP earnings per share was 24.

Down from 25 in the first quarter and 27 in the year ago quarter.

We finished the quarter with $221 million in cash and net cash of $26 million.

After repurchasing another $25 million of our shares.

We've repurchased $153 million worth of our shares over the past five quarters.

The $28 6 million of free cash flow, we generated in the quarter was impacted by lower revenue and the use of working capital for purchases of raw materials and inventory based on our prior year purchase commitments.

Edward B. Meyercord: He successfully built our go-to-market sales motions in stadiums and venues, driving large opportunities with Verizon and Kroger, and has been at the forefront of driving our new commercial opportunities with large service providers. He has valuable experience managing revenue operations with deep knowledge of our complex supply chain environment. Our chief product and technology officer, Nabeel Buhari, is focused on increasing our SaaS revenue in his newly minted role as our GM of our subscription business. We've also deepened our bench of SaaS expertise on the executive team over the past six months with the additions of our new Chief Marketing Officer, Monica Kumar, in December and CFO, Kevin Rose last May. The alignment of the team is crucial to helping accelerate growth and capture more share.

We expect a recovery in cash flow as revenue recovers and component purchases become more balanced with normalized sell through rates.

Now turning to guidance.

This quarter, we expect sell through to be significantly higher than sell in which.

Which we believe will have a meaningful impact on our operating results.

Quantify this impact we expect a $40 million to $50 million reduction in channel inventory in the third quarter, which will allow us to cover to a more normalized level of revenue in the fourth quarter.

As a result, we plan to take further cost actions to drive that recovery in earnings per share and cash flow.

Heading into the fourth quarter, we're expecting improved sequential revenue growth based on our funnel and the seasonality of our business led by our education vertical.

We believe our proactive approach to managing through this industry challenge will enable us to deliver improved growth and profitability in fiscal year 2025.

For the third quarter, we expect as follows.

<unk> revenue to be in a range of $200 million to $210 million.

Gross margin to be in a range of 59, 5% to 61, 5%.

Edward B. Meyercord: The Xtreme brand continues to rise in the marketplace through our customer wins and differentiated technology that creates more simplicity and flexibility across complex networking environments. Our promise of one network, one cloud remains a competitive differentiator. One network is underpinned by our universal hardware, highlighted by Campus Fabric, which has unparalleled campus security benefits and allows users to segment networks 10 times faster than any competitor. OneCloud offers customers modern networking tools with built-in AI ops, and we're unique because we're the only provider to offer cloud choice, whether that's public, private, hybrid, or edge.

Operating loss to be in a range of 12, 4% to eight 8%.

And loss per basic share in the range of 22 to 17.

A basic share count is expected to be around 129 million shares.

Looking further ahead into our fourth quarter, we expect.

Revenue to be in a range of $2 $65 million to $275 million.

Gross margins to be flat to slightly up from the third quarter.

non-GAAP operating margin to be in a range of 10% to 13%.

GAAP operating margin to be 1% to 4% and.

And fully diluted share count of 131 to 132 million shares.

With that I'll now turn the call, which the operator to begin the question and answer session.

Thank you.

Ladies and gentlemen to ask a question you will need to Westar one one on your telephone and wait for your name to be announced to withdraw. Your question you May Press Star one again, please standby, while we compile to Kenny roster.

Edward B. Meyercord: We're winning deals based on helping customers find new ways to deliver better outcomes, such as increased IT productivity, reduced stopbacks, or securing their business. The simplicity and flexibility of one network, one cloud remain a competitive differentiator, particularly in a time when major competitors have created complexity with disjointed solutions and uncertainty in their long-term rationalization of products and solutions. We remain the only pure-play networking company with a differentiated and integrated portfolio and a clear roadmap. We believe our exposure to the fastest-growing areas of the networking market, share gains, and new go-to-market partnerships provide ample growth opportunities to drive double-digit growth in the long term. We're forecasting market share gains with targeted partners leveraging the strength of our unique solutions for the enterprise. And with that, I'd like to turn the call over to our CFO, Kevin Rhodes, to walk us through the results and guidance. Thanks, guys.

Yes.

Our first question coming from the line of.

Eric much music from Lake Street Capital markets. Your line is now open.

Yes, I wanted to address the leadership change here and.

We're going to be approaching the channel differently than we were before.

If you could talk a little bit about.

Norman Rice is going to be doing I guess.

Sort of lost touch with the channel demand.

Those are my words, not yours, but what are we doing to help improve that channel monitoring.

What processes are ignoring normally putting in place.

Yes.

Thanks, Thanks, Eric.

What are the one of the first things that.

Norman is done.

With our with our leadership teams is to Stratus.

<unk> Fi, our customer base and to split out.

As more run rate business in terms of business, that's less than 50000.

And order.

And what that business looks like which is going to be more channel driven.

And can be impacted more through distributors and.

And marketing activities.

And to provide more clarity to the project based business and.

And stratify that project based business.

And I'd say, that's that's a big change that that enormous bringing to the equation.

Kevin Rhodes: Despite lower revenue in the second quarter, we improved our gross margins sequentially and optimized our operating expenses to maintain a healthy operating margin profile. Our EPS was, therefore, impacted less than a revenue shortfall in the quarter. In the second quarter, we took proactive action that enabled us to protect our profitability while continuing to invest in our strategic initiatives. We will continue to focus on aligning our cost structure accordingly as we navigate the second half of our fiscal year. Let me get into the notes. Second quarter revenue of $296.4 million sold 7% year-over-year and was in line with our revised outcome. Product revenue of $186.6 million sold 16.5% year-over-year, reflecting continued channel digestion and elongated sales cycles that are impacting the networking industry. These trends are consistent across both switching and wireless products.

The other thing that I mentioned is at Norman and Kevin are the architects behind our private subscription offer which.

Is it is it channel led.

Initiatives that we believe will be disruptive there's a lot of demand with some of the larger service providers that we have.

We're working with that.

That's building up and I think youll start to see and we will we'll be in a position to announce.

Meaningful deals in the second half.

Of this year.

And I also mentioned earlier in my comments about the managed services.

Provider partners that we have who are signing up and there.

The portfolio benefits in our technology benefits along with the unique capability that people are very interested in which is our consumption billing model.

<unk> provides for a lot of efficiency for that that go to market motion. So.

It's the stratification of the opportunities and I'd say more of a highly targeted approach to the channel to the core business along with these targeted new commercial models that we're going going to market with and Norman is very well.

Kevin Rhodes: Our product backlog normalized this quarter earlier than we initially anticipated, and our bookings approximated our product revenue for the first time in four quarters. In fact, our bookings trends were positive in both EMEA and APAC, where each grew double digits year over year. From a vertical perspective, while total bookings fell slightly, both quarter over quarter and from the prior year, our healthcare, education, manufacturing, and transportation slash logistics vertical markets grew from the prior year. We are encouraged by this level of customer activity, which informs our view that we will be able to get the channel digestion phase behind us as quickly as possible. Recurring revenue and SAS ARR were a bright spot in our quarter. SAS ARR grew 37% year-over-year to $158 million, driven by the strength of our renewals and activations of previously shipped products. Subscription-deferred revenue was up 32% year-over-year to $246 million.

He is the best qualified person to lead us on that front.

Okay and then.

Looking at the guidance here.

Really dramatic reset.

Wondering was there a.

The prior year outlook because.

We had.

So our guidance reset coming out of Q1 and now we've had even more dramatic reset coming out of Q2.

The.

The confidence level here, we've got one month under our belt for Q3.

Are we seeing any evidence to say things are getting better as far as the.

Sequential step up in Q4.

Yes, Eric I mean, we commented on.

On the funnel of opportunities specifically.

Commenting on.

Progress that we've seen.

In Asia Pacific.

And Kevin also touched on the fact that we're heading into E rate season, and this looks to be.

Kevin Rhodes: As we ship product from backlog, it's generating a tailwind for SAS. Total subscription and support revenue was $110 million, up 16% year-over-year. This growth was largely driven by the strength of our cloud subscription revenue, up 39% year over year. Recurring revenue continues to be a positive at extreme. Total recurring revenue of $101 million grew 14% year-over-year and 6% sequentially to now 34% of total revenue.

A pretty strong E rate season for us.

<unk>.

The declines.

Team as we were looking into Q2.

Our outlook for Q2.

And our plans to take down channel inventory.

The reality is we couldnt take inventory down nearly as much as that we had intended.

And I would say with the elongated sales cycles and with bookings pushing out the way they did it.

It only it only deepened our position in the channel.

And we had to make a decision as to whether or not we want to manage this out over time or take it all in one fell swoop and.

Our view and our perspective is to get it cleaned up and get more normalized as we head into Q4 and turned the corner on 25. So we are.

Kevin Rhodes: Based on our current outlook, we expect recurring revenue to account for approximately 35% of the full fiscal 2024 revenue. The growth of cloud subscriptions and maintenance drove the total deferred revenue to $549 million, up 23% year-over-year and 5% supply-demand. Gross margin was 62.5%, up 140 basis points from the prior quarter and up 400 basis points compared to the prior year-ago quarter.

And Thats.

That's how we've made the decisions that we're making.

Demand is obviously going to be masked by inventory flowing out of the channel and Thats, a 40% 40.

$40 million to $50 million number.

You heard Kevin talk about and that as we go into Q4, we do have seasonality and we are expecting more neat normal seasonality as we go into that quarter and we have the E rate business and we have a significantly larger funnel.

And that's what gives us confidence so where.

We are we're very focused on the clean up here this quarter and then <unk>.

Delivering and exceeding.

The.

Our outlook for the June quarter.

Thanks for taking my questions.

Okay.

Thank you and our next question coming from the line of.

Kevin Rhodes: This is the third quarter in a row that we've achieved 60 plus percent gross margin, which is proven to be an achievable level for extreme at normalized scale. We attribute this to improvements in mix due to the higher contribution of subscription and support revenue and an improvement in supply chain and distribution related costs. Our second-quarter operating expenses were $141 million, down $12 million from $153 million in the first quarter and up slightly from $139 million in the year-ago quarter. We plan to take additional actions to further optimize our operating expenses to the level of revenue we expect to achieve in the second half of fiscal 2024 in order to preserve our margin structure in the fourth quarter and into fiscal 2025. Operating margin for the second quarter was 14.8 percent, down from 17.7 percent and similar to 14.9 percent in the prior year quarter.

Timothy Horan with Oppenheimer. Your line is open.

Thanks, guys.

Can you just talk about maybe the end user demand our customers may be waiting for Wi Fi seven or C brs or further upgrades to cloud.

Just any color what's going on because the <unk>.

Step down.

Next quarter's guidance versus what you were thinking six months ago.

Incredibly dramatic.

Channel numbers that you just gave it seems only tell part of the story. Thanks.

Yes, Tim I think thats.

Youre seeing a much more conservative outlook as it relates to demand.

Yes.

Some cases in Wi Fi market, there will be some people that are holding off from Wifi seven.

We've talked about elongated sales cycles, which has been very real and the U S, where we've had verbal commitments for pretty exciting wins for extreme but the deals themselves.

Been pushed out and when we look at deals in our funnel that get to the commit level.

We closed on those deals it's more of a function of time so.

We're looking at this as timing.

You look at.

And this is why we're providing guidance for Q4 were were confident in the guide and how we're going to come out of that in Q4, but we are setting we are setting that base level.

Kevin Rhodes: This is the sixth quarter in a row of double-digit operating margin, also an achievable level for the company at normalized scale. All in, second quarter non-GAAP earnings per share were $0.24, down from $0.25 in the first quarter and $0.27 in the year-as-of quarter. We finished the quarter with $221 million in cash and net cash of $26 million after repurchasing another $25 million of our shares. We've repurchased $153 million worth of our shares over the past five quarters. The $28.6 million of free cash flow we generated in the quarter was impacted by lower revenue and the use of working capital for purchases of raw materials and inventory based on our prior year purchase commitment.

At a more conservative level than we had in the past.

And I'd say you tend to your point I think we're feeling a little bit burned in terms of what we were expecting to close in the funnel.

And we've gone back and taken a fresh view of that and.

Our view is to put it behind us and reset.

Here with the clean past clean path going forward.

As we look into fiscal 'twenty five there will be some tough comps if we look at the <unk>.

Q1, and Q2, but as we get into calendar 'twenty five.

We see ourselves on a really nice and a very strong footing for driving double digit growth.

And resuming where we left off.

And so why five seven can you maybe just talk about how much of an improvement it is for the customers or your benefits and.

Maybe.

How does the pricing of the product look like.

Kevin Rhodes: We expect a recovery in cash flow as revenue recovers and component purchases become more balanced with normalized sell-through rates. Now, turning to guidance. This quarter, we expect sell-through to be significantly higher than sell-in, which we believe will have a meaningful impact on our operating. To quantify this impact, we expect a $40 million to $50 million reduction in channel inventory in the third quarter, which will allow us to cover to a more normalized level of revenue in the fourth quarter. As a result, we plan to take further cost actions to drive the recovery in earnings per share and cash. Heading into the fourth quarter, we are expecting improved sequential revenue growth based on our funnel and the seasonality of our business, led by our education vertical.

Your ability to supply it and then just lastly on Wi Fi seven and it is.

What the competitive environment looks like and do you think this is one of the things kind of driving the elongated sales cycles, our customers waiting for this.

Yes.

I think it's fair to say that.

But there are going to be some customers in the marketplace that are waiting on this.

Im.

The benefit that you have in Wi Fi <unk> as you have the different frequency bands.

And do you have.

In our case.

Higher bandwidth.

Which is important and then.

Also bringing.

Dual band in terms of speeds.

And so theres a lot more flexibility in the solution. So every time you have these upgrades there is higher higher quality in terms of connectivity.

In this case there is more bandwidth.

There's more flexibility in terms of end user devices that we pick up on different frequencies.

And then we have the.

Dual bandwidth capabilities in terms of how we connect to the network.

This Wi Fi service for Us as cloud managed.

In addition to our 4000 series switch, which is purely cloud managed.

Kevin Rhodes: We believe our proactive approach to managing through this industry challenge will enable us to deliver improved growth and profitability in fiscal year 2025. For the third quarter, we expect revenue to be in a range of 200 to 210 million dollars. Gross margin to be in a range of 59.5 to 61.5, operating loss to be in a range of 12.4% to 8.8%, and Loss for Basic Share in the range of $0.22 to $0.17.

And as we're bringing some unique capabilities that provide a lot of advantages in terms of how to deploy them.

And run networks relative to the traditional C&I model.

We are provisioning and network deployments can be done in a much more efficient fashion and a more automated way.

Yes, there are a lot of benefits and what's coming out and our most recent releases.

And.

Yes in terms of in terms of opportunities it could have an impact.

And when does it start shipping at scale.

Sure.

Well.

We are <unk> at this point, so I think you would expect to see.

Shipping from Wi Fi seven.

Beginning in Q3 and really ramp up.

Begin to ramp in Q4.

Kevin Rhodes: A basic share count is expected to be around $129 million. Looking further ahead into our fourth quarter, we expect revenue to be in a range of $265 to $275 million, for margins to be flat to slightly up from the third quarter, non-GAAP operating margin to be in a range of 10 to 13 percent, gap operating margin to be one to four percent, and a fully diluted share count of 131 to 132 million shares. With that, I'll now turn the call over to the operator to begin the question and answer session. Thank you. Ladies and gentlemen, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced.

Okay.

Yeah.

Thank you.

And our next question coming from the line of David <unk> with UBS. Your line is open.

Great. Thanks, guys for taking my questions maybe to start on the competitive landscape, but that dynamic I think you guys spent a lot of time talking about.

Taking sort of the inventory destocking.

Pain short term, but you also talked about normal seasonality in Q4 and talking about gaining share over the long term can you maybe just kind of talk about what youre seeing competitively in the market today.

Is your confidence that you know.

We can get back to share gains over the intermediate and longer term and then I have a follow up question as well.

Okay.

Yes, David Thanks, So yes.

Yes, I'll comment on that and what gives us confidence is what we see happening in the market every day and we've talked about the largest competitor in this space that has a very different cloud solution and we continue to see the industry moving to cloud and we have a leadership position in cloud.

Operator: To withdraw your question, you may press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question, from Erik Martinuzzi from Lake Street Capital Market in Zeeland, is open.

No.

The largest player in the marketplace as Scott very different cloud solution from the traditional enterprise solution.

In addition to that they continue to invest in other markets and so the level of complexity that we're feeling in the marketplace surrounding the largest competitor is.

Eric Martinuzzi: Yeah, I wanted to address the leadership change here and how we're going to be approaching the channel differently than we were before. If you could talk a little bit about what Norman Rice is going to be doing. I guess we sort of lost touch with channel demand. Those are my words, not yours.

Is very real and opens up a lot of opportunities we've talked about some of the larger deals that we're getting into we continue to move up market and you will see us.

Continuing to do this with some of the announcements that will come out of extreme where in.

Edward B. Meyercord: But what are we doing to help improve that channel monitoring? What processes is Norman putting in place? Yeah, thanks.

In these highly competitive and highly contested.

<unk>.

Processes.

We're coming out on top.

Edward B. Meyercord: Thanks, Erik. You know, one of the first things that Norman has done, and with our leadership teams, is to stratify our customer base and to split out what is more run-rate business in terms of business that's less than $50,000 in order, and what that business looks like, which is going to be more channel-driven and can be impacted more through distributors and marketing activities, and to provide more clarity to the project-based business and to stratify that project-based business. And I'd say that's, you know, that's a big change that Norman's bringing to the equation. You know, the other thing that I'll mention is that Norman and Kevin, you know, were the architects behind our private subscription offer, which is a channel-led initiative that we believe will be disruptive.

And so youre seeing the likes of Cisco and HPE and juniper getting pushed back.

Extreme winning and that's part of our up leveling our brand so.

That's one of the ways that we have confidence relative to the largest player.

Everyone is very top of mind, the HP acquisition of Juniper.

What will that mean in our case it means that one of our competitors will be going away.

We.

We see a lot of opportunities certainly over the next couple of years as Theyre looking to rationalize their product portfolios.

This is going to create opportunities in fact, it already has where we are.

Were already getting calls from <unk>.

Customers direct customers and end users in the field.

As well as partners, who are concerned and very unsure about what does that product roadmap look like and what is it going to look like.

And.

This gives us.

These just create.

They create more opportunities for us.

No great. That's helpful and maybe just a follow up you talked about a strong E rate season, coming up and getting back to hopefully some degree of normal seasonality by the June quarter.

Edward B. Meyercord: There's a lot of demand from some of the larger service providers that we've, that we're working with. That's building, and I think you'll start to see, and we'll be in a position to announce, meaningful deals in the second half of this year. And I also mentioned earlier in my comments about the managed services provider partners that we have who are signing up. And there are the portfolio benefits and our technology benefits along with the unique capability that people are very interested in, which is our consumption billing model, which provides for a lot of efficiency for that go-to-market motion. So it's the stratification of the opportunities and I'd say a more highly targeted approach to the channel, to the core business, along with these targeted new commercial models that we're going to market with. And Norman is very good; he's the best qualified person to lead us on that front.

Recognizing that obviously in the first half of fiscal 'twenty five as difficult comps on a year over year basis.

Are you planning for what I would consider to be more normal seasonal behavior on a quarter over quarter basis as we get through June going forward or is there still some digestion from whether it's order growth intake underlying demand slash.

Sort of channel digestion that we should expect as we go through the second half of this calendar year into 'twenty.

And then just maybe one final one for Kevin if I could slip it in there you mentioned, obviously double digit margins at normalized scale I think the phrase was just.

Love to get some more color on how he's thinking about it because I know at the analyst day, you. Obviously, you guys had talked about.

Margins above let's call it fiscal 'twenty two levels back into the mid teens, but just wanted to get more color on.

What scale do you need to get to you to get back to margins that are more robust than let's say fiscal 'twenty.

And I'll cover the first part of the question and then Kevin I'll, let you jump in and cover the second part.

We're looking I think.

Eric Martinuzzi: Okay, and then looking at the guidance here, just a really dramatic reset. I'm wondering if there was a prior year outlook because we had... A guidance reset coming out of Q1, and now we've had an even more dramatic reset coming out of Q2. The confidence level here, we've got one month under our belts for Q3. Are we seeing any evidence to say things are getting better as far as the sequential step-up in Q4 is concerned? Yeah, Eric. We commented on, you know, the funnel and opportunities, specifically commenting on progress that we've seen in EMEA and Asia Pacific. And Kevin also touched on the fact that, you know, we're heading into E-rate season, and this looks to be a pretty strong E-rate season for us.

Yes more traditional.

Seasonality as you look at the shifts going from.

Q1.

Q4 into Q1 to Q2 et cetera, I think in the core business.

The outlier here is going to be some of the new commercial motions that we have that that are not likely to be.

And the same seasonal patterns. So some of the some of the larger deals that traditionally we would not have access to in terms of our private subscription offer for example.

We're not necessarily going to fall into that.

Traditional.

Flow of the core business and I'd say the same thing is true with our MSP business as that ramps, that's just going to be more of a steady incline then it will be kind of a.

Traditional.

Seasonal business.

Kevin do you want to comment on the second second part of the question sure.

Eric Martinuzzi: The, you know, declines came as we were looking into Q2, our outlook for Q2, and our plans to take down channel inventory. The reality is, we couldn't take inventory down nearly as much as we had intended. And I would say with the elongated sales cycles and with bookings pushing out the way they did, it only deepened our position in the channel. And we had to make a decision as to whether or not we want to manage this out over time or take it all in one fell swoop.

Sure absolutely happy to.

Are we there.

Reason why we gave the fourth quarter outlook is to actually show what we believe will be a more normalized we do believe we will grow off of Q4. So we're not thinking that that is like the new normal forever. Because we have these opportunities with MSP at ESMO that will continue.

Mature and provide further growth in the future, but with Q4 being 10% to 13%. We believe thats a good jumping off point, but we will maintain operating margins in the double digits throughout.

This fourth quarter and throughout next year is our plan.

Edward B. Meyercord: And, you know, our view and our perspective is to get it cleaned up and normalized as we head into Q4 and turn the corner on 25. So we are, yeah, and that's how we've made the decisions that we're making. Demand is obviously going to be masked by inventory flowing out of the channel, and that's a $40 to $50 million number that you heard Kevin talk about. And then, as we go into Q4, we do have seasonality, and we are expecting more normal seasonality as we go into that quarter, and we have the E-rate business, and we have a significantly larger funnel. And that's what gives us conflict.

In terms of like how much we can scale from where we were in 'twenty, three or 'twenty four and the future. We really have to go and spend a little bit more time looking at what our 'twenty five 'twenty six contributions youre going to be to get into the higher realms.

Mid mid teens to high teens, EBIT EBIT, 20% scale beyond that but we do think it's possible I mean, we are already showing the disciplined that if we need to we could take costs out of the business to drive and keep our margins at <unk>.

That double digit level.

And what we need to do is we're focused on that it's continued to scale and grow the business and generate more profitability over time and that's exactly what Ed.

Intention intending to do is to continue to scale the operating margins over time.

Great. Thanks, guys.

Okay.

Operator: So we're, we're, we're, we're very focused on the cleanup here this quarter and then delivering and exceeding our, and our outlook for the June quarter. Thanks for taking my questions. Yeah, thanks, Erik. Thank you. And our next question comes from the line of... Timothy Horan, Witt Oppenheimer, Yolanda Selpin.

Thank you.

And as a reminder to ask a question. Please press star one now.

Our next question coming from the line of Christian Schwab with Craig Hallum Capital. Your line is now open.

Hey, good morning, guys.

No.

It's become evident.

Over earning during supply chain issues et cetera, et cetera, and competitors not having products.

Timothy Horan: Thanks guys. Kitty, just talk about maybe end user demand. Are our customers maybe waiting for Wi-Fi 7 or CBRS or further upgrades to the cloud? Just any color, what's going on?

When we look at your business, assuming baseline modest growth before we entered this period and I kind of come up with a number of about $1 billion, one plus or minus.

Edward B. Meyercord: Because the step down in next quarter's guidance versus what you were thinking six months ago, you know, the incredibly dramatic channel numbers that you just gave don't tell part of the story. Yeah, Tim, I think that's you're seeing a much more conservative outlook as it relates to demand. Yes, in some cases in the Wi-Fi market, there will be some people that are holding off for Wi-Fi 7.

Is that kind of what you believe the business.

We're a little bit below that run rate March a little bit above that are kind of in that light in June is that kind of our starting point.

From from your top line growth initiatives is that fair or is that not the way you think about it at all.

I think it's fair.

We're going to build.

Out of this and what we've said is Christian we used the language kind of more normalized to comment.

Timothy Horan: We've talked about elongated sales cycles, which have been very real in the US, where we've had verbal commitments for pretty exciting wins for Xtreme, but the deals themselves have been pushed out. And when we look at deals in our funnel that get to the commit level, you know, we close on those deals. It's more of a function of time.

On the June quarter.

And when you kind of run the math on some some growth on that kind of baseline business.

You get to the one dot one.

So I think Thats a fair assessment.

Kevin I don't know, if you want to add to that or comment.

I think youre right.

Edward B. Meyercord: So, you know, we're looking at this timing. If you look at, and this is why we're providing guidance for Q4, we're confident in the guidance and how we're going to come out of this in Q4. But we are setting that base level at a more conservative level than we have in the past. I'd say, Tim, to your point, I think we're feeling a little bit burned in terms of what we were expecting to close in the funnel, and we've gone back and taken a fresh view of that, and our view is to put it behind us and reset, here with a clean path to going forward. As we look into fiscal 25, there will be some tough comps if we look at Q1 and Q2.

With Q4 being at that level, and then a jumping off point there with it being the new normal with continue we do believe that we will continue to grow the business, we'll have a better growth story in the second half of our fiscal year 'twenty five.

In the first half, but in general yes in terms of.

Range 1 billion one is the new normal is about right.

Okay.

No.

Yes.

Is.

As normal work doing anything about.

Moving to selling product as a service.

Across the board and putting the mechanisms in place to be more aggressive in that or is that something youre going to watch some of the other people in the industry due to see if there is a tremendous customer interest.

I think youre going to see us be a lot more aggressive and I.

I mentioned that the triumvirate of Norman stepping in and taking the lead as Chief commercial officer.

Edward B. Meyercord: But as we get into calendar 25, we see ourselves on a really nice and very strong footing for driving double-digit growth and resuming where we left off. And so, Wi-Fi 7, can you maybe just talk about how much of an improvement it is, you know, for the customers or your benefits and, you know, maybe... How does the pricing of the product look like, your ability to supply it, and then, just lastly, Wi-Fi 7, and what the competitive environment looks like, and do you think this is one of the things kind of driving the elongated sales cycles? Are our customers waiting? Yeah, I mean, I think it's fair to say that there are going to be some customers in the marketplace that are waiting for this. You know, the benefit that you have in Wi-Fi 7 is you have, you know, different frequency bands, and you have, in our case, higher bandwidth, which is important.

The deal is our chief technology, and Chief product officer, but he is also running across functional team on SaaS and subscription and one of the things that Youre seeing is really nice growth on the subscription line and really healthy margins on that subscription business and so.

Okay.

As we think about.

Growth, we have plans to continue that growth on the subscription line.

Also we have the benefit of.

Gross margins on that finally, we made a key hire Monica Kumar, who has come and join us.

I think she is going to be the glue between our product <unk> and our <unk>.

Selling <unk> and I think we will.

We have an opportunity to be much more targeted and I would say much more aggressive.

And direct outreach to the market more broadly as well.

More targeted with with the channel and we have some really interesting growth opportunities in the channel. So.

Edward B. Meyercord: And then we're also bringing dual bands in terms of speeds, and so there's a lot more flexibility in the solution. So, yeah, every time you have these upgrades, there's higher quality in terms of connectivity. In this case, there's more bandwidth.

I think this represents a unique opportunity for extreme to really step up in the marketplace and thats, how we see it.

Okay, Great and then my last question.

The recent consolidation in the space.

You did a big consolidation.

Edward B. Meyercord: There's more flexibility in terms of end-user devices that we pick up on different frequencies. And then, you know, we have dual bandwidth capabilities in terms of how we connect to the network. You know, the Wi-Fi 7 for us is cloud-managed, in addition to our 4000 series switch, which is purely cloud-managed.

Years ago.

An extremely confused your customer base.

But which products you were going to support and which products you were not going to support so I think with that as a backdrop should set you up.

<unk> to be well positioned to take advantage of what could be.

Potential.

Confusion.

Edward B. Meyercord: You know, and with this, we're bringing some unique capabilities that provide a lot of advantages in terms of how to deploy and run networks, relative to the traditional CLI model, where provisioning and network deployments can be done in a much more efficient fashion and in a more automated way. So, yeah, there are a lot of benefits to what's coming out in our most recent releases. And, yeah, in terms of opportunities, it could have an impact, and when does it start shipping at scale? Well, look, you know, we are GA at this point. So I think you would expect to see shipping from Wi Fi Seven begin in Q3 and really ramp up and begin to slow down in Q4. Thank you.

In the marketplace do you think that that will help be a competitive advantage for you to gain share.

We do.

It looks like from the announcement it looks like the.

Yeah.

HP was very interested in.

The AI platform that then.

Jennifer brings to the equation and that Juniper leadership will be heading the networking side, what does that mean to the massive installed base.

<unk> and Aruba technology.

Yes.

He has a lot of questions and for customers. It raises an awful lot of questions and keep in mind Juniper is kind of an enterprise really from a service provider position and so in terms of the breadth of their portfolio.

They are still Miss was very much kind of.

Operator: And our next question comes from the line of David Burt with UPS. CLN is open. Great, thanks guys for taking my questions. Maybe to start on the competitive landscape and the dynamics, I think you guys spent a lot of time talking about taking sort of the inventory, de-stocking, you know, pain in the short term, but you also talked about normal seasonality in Q4, talking about gaining share over the long term. Can you maybe just kind of talk about what you're seeing competitively in the market today that gives you confidence that, you know, we can get back to share gains over And then I have a follow-up question as well. Yeah, Dave, thanks.

Driving the efforts and in terms of the full end to end enterprise solution.

Not as robust and so how that incorporates and how that gets built into the the Aruba enterprise solution set.

There are a lot of questions out there.

That's going to create.

<unk> for us.

And we are very focused on a very clean and simple and flexible solution.

In terms of our universal hardware in terms of interfacing with one cloud.

This presents a very fresh alternative and a very clean alternative for customers that are out there.

The other thing that Youre aware of Christian from our prior.

M&A activities is that.

They baked a lot of synergy and to their into the formula and.

When you look at 430 $450 million of expense coming out of the business.

David Burt: So, I'll comment on that. What gives us confidence is what we see happening in the market every day, and we've talked about the largest competitor in the space that has a very different cloud solution, and we continue to see the industry moving to the cloud, and we have a leadership position in the cloud. So, the largest player in the marketplace has a very different cloud solution from the traditional enterprise solution. In addition to that, they continue to invest in other markets, and so the level of complexity that we're feeling in the marketplace surrounding the largest competitor is very real and opens up a lot of opportunities. We've talked about some of the larger deals that we're getting into. We continue to move up market, and you'll see us doing this with some of the announcements that will come out of Xtreme, where in these highly competitive and highly contested markets, we're coming out on top. And so you're seeing the likes of Cisco and HP and Juniper getting pushed back and extreme winning. And that's part of how we're up-leveling our brand. So, you know, that's one of the ways that we have confidence, you know, relative to the largest player.

Youre talking about thousands of people coming out of that business and where they come from and how that plays out.

Again, we'll create disruption.

And as I mentioned earlier, we've gotten calls from were already getting calls from employees and customers and partners. So.

We think this will present opportunities potentially hiring opportunities and new growth opportunities for us.

Great no other questions. Thank you.

Thank you.

Thank you and our next question coming from the line of Dave Kang with B Riley. Your line is open.

Thank you. Good morning. My first question is regarding bookings you reported that Asia and Europe were up double digits year over year. Just wondering if you can provide any color on North America bookings.

That's helpful.

Color is.

That's the area, where we've been challenged in terms of the bookings.

We were close to a book to Bill ratio of one in the quarter. So that was positive news, but but but north America was down year over year.

Got it and then so it sounds like fiscal third quarter.

The inventory excess inventory.

Excess inventories will be flushed out so can we expect fiscal fourth quarter to be sort of like a clean channel inventory.

Edward B. Meyercord: You have time for one more question, very top of mind: the HP acquisition of Juniper, what will that mean? You know, in our case, it means that one of our competitors will be going away. We see a lot of opportunities, certainly over the next couple of years, as they're looking to rationalize their product portfolios. This is going to create opportunities. In fact, it already has where we're already getting calls from customers, direct customers, and users in the field, as well as partners who are concerned and very unsure about what that product roadmap looks like. And what is it going to look like?

Yes, that's exactly our intent is to get to a clean and to as get normalized in the fourth quarter and beyond.

So it sounds like based on your.

I would just add we look at.

Obviously normalized.

Backlog has happened.

Quickly more quickly than originally anticipated and as we look at entering Q4, we look at normalized backlog and normalized channel inventory. So that's somewhat of a clean slate as we head into Q4 and turn the corner into fiscal 'twenty five.

Edward B. Meyercord: And this gives us, You know, these just create, they create more opportunities for us. Not great, but that's helpful. And maybe just to follow up, you talked about a strong E-rate season coming up and getting back to, hopefully, some degree of normal seasonality by the June quarter, although acknowledging that obviously the first half of fiscal 25 is difficult comps on a year-over-year basis. Are you planning for what I would consider to be more normal seasonal behavior on a quarter of a quarter basis as we get through June going forward, or is there still some digestion from whether it's order growth intake, you know, underlying demand slash sort of channel digestion that we should expect as we go through the second half of this calendar year into the fourth quarter? And then, just maybe, one final one for Kevin, if I could slip it in there, I think the phrase was, we just love to get some more color on how he's thinking about it.

And based on your fiscal fourth quarter Guide revenue guide you are implying that orders will be up.

Typically sequentially from third to fourth quarter correct.

Yes, we got the E rate season, there we mentioned that earlier. So we will we are expecting sequential growth.

Our two strongest quarters in a year or the fourth quarter and.

Sorry, the second and fourth quarter of our fiscal year. So as we think about the June quarter, we got the E rate season, there, we've got a stronger pipeline than.

And then we have in the third quarter here and we've got strong E rate season coming at us. So we are expecting sequential growth in bookings.

My last question is Ed you mentioned that fiscal 'twenty five you're expecting meaningful growth. Just wondering if you can kind of provide.

To provide additional color should we expecting should we expect like a double digit.

Would that be meaningful.

That.

Correct and Thats, how were thinking about it so we looked at.

There is going to be a tough comp in the first quarter.

Given that we landed at $3 53 last year.

Sure.

Q1 of this year.

Then I.

I think you get to.

David Burt: Because I know what the analysts say, obviously, you guys have talked about, you know, margins above, let's call it fiscal 22 levels back into the teens, but just wanted to get more color on, you know, what scales you need to get to to get back to margins that are more robust than, let's say, fiscal 22. And I'll cover the first part of the question, and then, Kevin, I'll let you jump in and cover the second part. We're looking, I think, at yes, more traditional... seasonality as you look at the shifts going from, you know, Q1 to, you know, Q4 into Q1 to Q2, etc. I think in the core business that the outlier here is going to be some of the new commercial activities that we have that are not likely to be in the same seasonal patterns. So some of the larger deals that traditionally we would not have access to, in terms of our private subscription offer, for example, are not necessarily going to fall into that, you know, the traditional seasonal flow of the core business.

The second half as we turned the corner into calendar 'twenty. Five obviously, we will have a very a much easier comp in Q3, but we expect that our marketing initiatives.

Our go to market initiatives in terms of the core business and then the realization of these new commercial models.

That that are growing but they haven't really had an impact on our financials yet.

By the time, we get to that calendar <unk>.

25 timeframe youll start to see a much more meaningful impact of those initiatives coming into play and adding to growth over just what we would consider to be kind of a core market growth.

Got it thank you.

Okay.

Thank you.

Question coming from the line of Alex Henderson with Needham. Your line is now open.

So.

Your commentary about $1 $1 billion being the run rate revenue number and the guide for the.

Fourth quarter of fiscal year, $2 65 to $2 75.

Yes.

Quote unquote more normalized.

A little bit troubling considering in the fourth quarter of 2019, you did $252 million for the full year 2019, you didn't roughly $1 billion at $995 8 million.

Edward B. Meyercord: And I'd say the same thing is true with our MSP business, that ramps. That's just going to be more of a steady incline than it will be a traditional seasonal business. Kevin, do you want to comment on the second part of the question? Sure. Sure, absolutely happy to.

And that's 2019 that would put a growth rate.

Your quote unquote normalized $1 $1 billion of around two 5% over that timeframe.

Kevin Rhodes: You know, our current, the reason why we gave the fourth quarter outlook is to actually show what we believe will be a more normalized. We do believe we will grow off of Q4. So we're not thinking that that is like the new number forever because we have these opportunities with MSP and ESPO that will continue to mature and provide further growth in the future. But with Q4 being 10 to 13 percent, we believe that's a good jumping off point. But we will maintain operating margins and double digits throughout this fourth quarter and throughout next year, is our plan. In terms of how much we can scale from where we were in twenty-three or twenty-four in the future, we really have to go and spend a little bit more time looking at where our twenty-five, twenty-six contributions are going to be to get into those higher realms of mid-teens to high teens, even to 20 percent scale But we do think it's possible.

Certainly you would not say that that's a reasonable growth rate so.

Question I have for you is what is the real normalized number if you were to adjust.

These numbers too.

Fully normalize the the baseline you say $1 $1 billion is normalize, but I don't think.

Believe euro 2.5% growth company. So can you please adjust.

That language a little bit for us.

Understanding how much the fourth quarter is still a normalized as opposed to more normalized and what would be the run rate of revenue. If you had a fully normalized full year.

Thank you.

Yes, so let.

Let me Kevin just.

Hit the just hit a high level and then I'll, let you come in and fill in but Alex we're obviously.

Pretty massive reset here.

<unk>.

Our Q3.

With a lot of cleanup involved.

We have.

We have new teams and we have a new approach that are coming in and looking to sort of build off of the base.

Kevin Rhodes: I mean, we are already showing the discipline that if we need to, we could take costs out of the business to drive and keep our margins at that double-digit level. And what we need to do is we're focused on that, continue to scale and grow the business and generate more profitability over time. And that's exactly what our intention is to do, to continue to scale the operating margins. Great. Thanks, guys. Thank you. And as a reminder, to ask a question, please press star 1 1.

And resetting the foundation.

Whether or not it would be normal seasonality going into Q1.

Or is there still conservatism in that.

That Q4 number where you could still see some growth sequential growth coming out of that.

We wanted to provide the outlook for.

For the.

Our fiscal Q4 to.

To provide again, what we're calling more normalized.

Will that be up.

Fully normalized bookings number.

They are I think we need some work on that and we will definitely be coming back to you.

With a more refined outlook on how we see the evolution of booking, especially considering these other commercial models, which quite frankly, we have not included in our outlook.

Operator: And our next question, coming from the line of Christian Schwab with Gregg Helm, Capitol Hill, and it's... Hey, good morning, guys. So Ed, now that, you know, it's become evident of, you know, over earning during supply chain issues, etc, etc, and competitors not having product, You know, when we look at your business and baseline modest growth before we entered this period. And I kind of came up with a number of about, you know, a billion one plus or minus.

I think thats the key.

I think that the MSP model is very nascent very early the <unk> model, we have as well as private subscription offers also very early in its.

Stages.

This was based on a run rate of the existing business and products. So we've got <unk> coming on board, we've got Wi Fi seven seven coming onboard we've got new products innovations coming out that will continue to give us a tailwind in the future right. Now we're just not prepared to go and guide for 2025 or beyond but wanted to give at least a normalized Q4 it there.

And Alex the other the other comment to make is that we have seen.

Christian David Schwab: Is that kind of what you believe the business, you know, we're a little bit below that run rate in March, a little bit above that, or kind of in that light in June, is that kind of our starting point? from your top line growth initiatives. Is that fair?

Earlier, we saw Asia Pacific.

Recovering more quickly.

And then we've seen EMEA come with with year over year growth.

As Kevin mentioned.

And we just haven't seen it yet in the Americans and so the timing of that Americas recovery to the normal buying cycle and how all of that kicks in from a timing perspective.

And we have a lot of large deals that we had.

That are in the hopper for us really exciting from a brand perspective in terms of where we are in these competitive processes.

Edward B. Meyercord: Or is that not the way you think about it at all? I think it's fair. We're going to build out of this. And yet, what we've said is, and Christian, we use a kind of more normalized language to comment on the June quarter. And when you kind of run the math on some growth on that kind of baseline business, you get to 1.1. So I think that's a fair assessment. Kevin, I don't know if you want to add to that or comment. No, I think you're right, Ed.

But they are very lumpy and it's I think it's a little challenging for the team right now to to stick their necks out and call. Some of these larger deals.

That's not my problem.

My problem is the guidance commentary that normalized full year revenue run rate would be $1 1 billion, which is obviously still incorporating a significant amount of.

Backlog adjustment and the comment that more normalized implies that it's almost normal and it's certainly not in the fourth quarter. So what is the nuts that youre assuming for the fourth quarter.

Kevin Rhodes: I mean, with Q4 being at that level and then a jumping off point there, with it being the new normal, we do believe that we will continue to grow the business. We'll have a better growth story in the second half of our fiscal year 25 than in the first half. But in general, yeah, in terms of range, a billion one is the new normal.

It would be fully normalized fourth quarter.

Okay.

Can you give us some sense of what more normalized means in <unk>.

So the scaling of it.

Yes.

Edward B. Meyercord: You know, is Norman's work doing anything about moving to, you know, selling products as a service, across the board, and putting a mechanism in place to be more aggressive in that? Or is that something you're going to watch some of the other people in the industry do to see if there's tremendous customer interest? I think you're going to see us be a lot more aggressive.

I'm not sure we're there I'm not sure. We're there yet I mean, if we look at a $2 75 number.

Yes, if we look at it at $2 75 number in Q4, and obviously there is the math to get to one one.

When you just roll that over.

So theres not I guess, you would say there's not a lot of growth built into that for a normalized fiscal 'twenty five Alex.

Edward B. Meyercord: And, you know, I mentioned the triumvirate of Norman stepping in and taking the lead as chief commercial officer. Nabeel is our chief technology and chief product officer, but he's also running a cross-functional team on SAS and subscription. And one of the things that you're seeing is really nice growth on the subscription line and really healthy margins on that subscription business. And so, you know, we, you know, as we think about growth, we have plans to continue that growth on the subscription line. Also, we have the benefit of gross margins on that. You know, finally, we made a key hire, Monica Kumar, who's come and joined us.

Well I mean.

Two five.

Three and fourth quarter of 2019, and now you're telling me $2 75 is close to normalized.

I mean, Alex difficult trying to understand reconcile those two numbers.

Even close to normalized in that context, so how big is the number we still absorbing $30 $40 million.

In the June quarter.

Inventory absorption.

Yes, Alex I mean, the thing that you're missing I think is the North America is still recovering it was down year over year I am not one thing anything.

I'm asking what the nut is you're assuming when you lose when you give us the guidance for the fourth quarter in terms of the absorption in the recovery and the environment. We're assuming is that not we're assuming no no incremental amount as you say nuts in the fourth quarter, we assume.

Edward B. Meyercord: You know, I think she's going to be the glue between our product orgs and our selling orgs, and I think we'll have an opportunity to be much more targeted and, I would say, much more aggressive in direct outreach to the market more broadly, as well as more targeted with the channel. And we have some really interesting growth opportunities in the channel, so I think this represents a unique opportunity for Extreme to really step up in the marketplace. And that's how we see it. And it's great.

<unk> absorption will occur in the third quarter with no more absorption needed in the fourth quarter, what we need what we need to see is we need to see the market. The entire market is down right. Now. This is not just at extreme issue. This is exogenous issue that's <unk>.

Across all.

Networking and so where we see we hope is that the market starts to come back and that we will see the north American market come back and.

Christian David Schwab: And then my last question has to do with the recent consolidation in the space. You did a big consolidation, you know, years ago and really confused your customer base about which products you were going to support and which products you were not going to support. So I think that that as a backdrop should set you up, you know, to be well positioned to take advantage of what could be potential confusion in the marketplace. Do you think that that will help be a competitive advantage for you to gain share? We do!

I appreciate your points, but like we've got to get the whole market to come back and spend.

Across the board.

Great. Thanks, Okay.

Okay.

Yes.

Thank you.

And I will now turn the call back over to Mr. Ed <unk> for any closing remarks.

Okay. Thank you. Thank you everybody for participate participating on the call and obviously, we will have callbacks with many of you.

And we appreciate all the good questions I asked what it would take time to think.

Edward B. Meyercord: You know, from the announcement, it looks like HP was very interested in the AI platform that Juniper brings to the equation and that Juniper leadership will be heading the networking side. What does that mean to the massive install base of Aruba and Aruba technology? It's, you know, it raises a lot of questions.

Our employees.

And customers and partners who are participating here.

For all of the work is where we're transitioning through.

This cycle.

And putting ourselves on more normalized footing as we've been talking about.

Edward B. Meyercord: And for customers, it raises an awful lot of questions. And keep in mind, Juniper is kind of an enterprise from a service provider position. And so in terms of the breadth of their portfolio, they are still, you know, MIST was very much kind of driving the efforts. And in terms of the full end-to-end enterprise solution, it's not as robust.

Yes, we are.

Absolutely looking forward to putting us this chapter behind us.

Im.

And we're committed to innovating in the industry.

And continuing to.

Deliver new solutions and we are committed to these strategic initiatives.

That we will that will drive long term growth for us at extreme.

Edward B. Meyercord: And so how that integrates and how that gets, you know, built into the Aruba enterprise solution set, there are a lot of questions out there. And I think that's going to create opportunities for us. And, you know, we were very focused on a very clean and simple and flexible solution, in terms of our universal hardware, in terms of interfacing with one cloud.

Thanks, everybody and have a good day.

Ladies and gentlemen that does now conference for today. Thank you for your participation you may now disconnect.

Edward B. Meyercord: This presents a very fresh alternative and a very clean alternative for customers that are out there. The other thing that, you know, Christian, from our prior M&A activities is that they've baked a lot of synergy into the formula, and when you look at $430, $450 million of expenses coming out of the business, you're talking about thousands of people coming out of that business, and where they come from and how that plays out, again, will create disruption. And as I mentioned earlier, we've gotten calls from... We're already getting calls from employees, customers, and partners, so... We think this will present opportunities, potentially hiring opportunities, and new growth opportunities for us. Great No other questions. Thank you. Yeah, thank you. Thank you. And our next question, coming from the lineup, is Dave Kang with Be Riley.

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Yes.

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So.

Operator: Do you want to open it? Thank you. Good morning.

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Dave Kang: My first question is regarding bookings. You reported that Asia and Europe were up double digits year over year. I was just wondering if you could provide any color on North America bookings.

Okay.

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Edward B. Meyercord: I mean, the color is, I'd say that's the area where we've been challenged in terms of, you know, the bookings. We were close to a book-to-bill ratio of one in the quarter, so that was positive news, but North America was down year-over-year.

Yes.

Yes.

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Edward B. Meyercord: And then so it sounds like fiscal third quarter, you know, most of the inventory, excess inventories, will be flushed out. So can we expect fiscal fourth quarter to be sort of like a clean channel inventory? Yes, that's it.

Yes.

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Okay.

Yes.

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Okay.

Edward B. Meyercord: That's exactly our intent is to get that clean and to have it get normalized in the fourth quarter and beyond. So it sounds like I would just add, you know, we look at obviously normalized backlog has happened quickly and more quickly than originally anticipated. And as we look at entering Q4, we look at a normalized backlog and a normalized channel. So, somewhat of a clean slate as we head into Q4 and turn the corner into fiscal 24. And based on your fiscal fourth quarter guide, revenue guide, you're implying that orders will be up significantly sequentially from third to fourth quarter, correct? Yeah, we've got the E-rate season there.

Dave Kang: We mentioned that earlier. So we will, we are expecting sequential growth. A, you know, our two strongest quarters in a year are the fourth quarter and the second, sorry, the second and fourth quarter of our fiscal year. So as we think about the June quarter, we have the E-rate season there. We've got a stronger pipeline than we did in the third quarter here, and we've got a strong E-rate season coming at us. So we are Gross, and the last question is, Ed, you mentioned that Fiscal 25 is expecting meaningful growth. Just wondering if you can kind of provide additional color; should we expect, like, a double digit? Would that be meaningful?

Edward B. Meyercord: That's correct. And that's how we're thinking about it, David. So we looked at that there was going to be a tough comp in the first quarter, given that we landed at 353 last year or this, you know, for Q1 of this year. Then, you know, I think you get to the second half as we turn the corner into calendar 25. Obviously, we'll have a very much easier comp in Q3.

Yes.

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Dave Kang: But we expect that our marketing initiatives, you know, our go-to-market initiatives in terms of the core business, and then the realization of these new commercial models that are growing, but they haven't really had an impact on our financials yet. That by the time we get to that calendar year, 25 timeframe, you'll start to see a much more meaningful impact of those initiatives coming into play and adding to growth over just what we would consider to be kind of core market growth. I got it.

Okay.

Yeah.

Yes.

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Yes.

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Operator: Thank you. Thank you. And our next question, coming from the line of Alex Henderson with Needham, your line is open.

Alex Henderson: So, your commentary about 1.1 billion dollars being the run rate revenue number and the guide for the... fourth quarter of the fiscal year at 265 to 275, which is Quote-unquote more normalized is a little bit troubling considering that for the fourth quarter of 2019, you did $252 million, and for the full year 2019, you did roughly a billion dollars at $995.8 million, and that's 2019. That would put a growth rate on your quote-unquote normalized $1.1 billion of around 2.5% over that time frame, and certainly you would not say that that's a reasonable growth rate. So the question I have for you is... What is the real normalized number if you were to adjust these numbers? Fully normalized, baseline. You say 1.1 billion is normalized, but I don't think so...

Okay.

Yes.

Yes.

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Okay.

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Kevin Rhodes: I can't believe you're... 5% Growth Company. So can you please adjust that language a little bit for us in terms of understanding how much the fourth quarter is still unnormalized? more normalized, and what would be the run rate of revenue if you had a fully normalized full year? Yeah, Alex, so let me, Kevin, just hit a high level, and then I'll let you come in and fill in.

Edward B. Meyercord: But Alex, obviously, it's a pretty massive reset here in our Q3, you know, with a lot of cleanup involved. We have new teams, and we have a new approach that are coming in and looking to sort of build off of the base and reset the foundation. Whether or not it would be normal seasonality going into Q1, or is there still conservatism in that, you know, that Q4 number where you could still see some growth, sequential growth coming out of that? You know, we wanted to provide the outlook for, for the fiscal Q4 to provide, again, what we're calling more normalized. Will that be a fully normalized bookings number? I think we need some work on that, and we'll definitely be coming back to you with a more refined outlook on how we see the evolution of booking, especially considering these other commercial models, which, quite frankly, we have not included in our outlook. I think that's the key, Ed.

Yes.

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Yes.

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Yeah.

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Kevin Rhodes: I think that the MST model is very nascent, very early. The ESPO model we have as well, the private subscription offer, is also very early and in stages. This is based on the run rate of the existing business and products. So we've got ZT&A coming on board. We've got Y577 coming on board.

Okay.

Okay.

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Kevin Rhodes: We've got new products and innovations coming out that will continue to give us that tailwind in the future. Right now, we're just not prepared to go and guide for 2025 or beyond, but we wanted to give at least a normalized Q4 at this point. And Alex, the other comment to make is that we have seen, earlier we saw Asia-Pacific recovering more quickly, and then we've seen EMEA come with the year-over-year growth that Kevin mentioned. And we haven't seen it yet in the Americas.

Yes.

Yes.

Yes.

Okay.

Yes.

Sure.

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Yes.

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Yeah.

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Edward B. Meyercord: And so the timing of that America's recovery to the normal buying cycle and how all of that kicks in from a timing perspective. And we have a lot of large deals that are in the hopper for us. Really exciting from a brand perspective in terms of where we are in these competitive processes, but they're very lumpy, and I think it's a little challenging for the team right now to stick their necks out and close some of these larger deals. That's not my problem.

Yes.

Okay.

Yes.

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Alex Henderson: My problem is the commentary that the normalized full-year revenue run rate would be at $1.1 billion, which is obviously still incorporating a significant amount of backlog adjustment. And the comment that it's more normalized implies that it's almost normal, and it's certainly not in the fourth quarter. So what is the number that you're assuming for the fourth quarter? What would be the fully normalized fourth quarter? Give us some sense of what being more normalized means in terms of the scaling.

Okay.

Thank you.

Yes.

Yes.

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Edward B. Meyercord: Yeah, I mean, I'm not sure we're there. I'm not sure we're there yet. I mean, if we look at a 275 number in Q4 and obviously, you know, there's the math to get to 1.1 when you just roll that over. So there's not I guess you would say there's not a lot of growth built into that for a normalized fiscal 25, Alex. Well, I mean, you did 253 in the 4th quarter of 2019 and now you're telling me 275. How big is the nut?

Okay.

Yes.

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Yes.

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Okay.

Alex Henderson: in the June quarter of inventory absorption. Yeah, Alex. I mean, the thing that you're missing, I think, is North America is still recovering. It was down year over year. I'm not missing anything. I'm asking what the nut is that you're assuming when you give us the guidance for the fourth quarter in terms of the absorption in the recovery in the environment. How big is that nut?

Good day and thank you for standing by welcome to extreme networks second quarter fiscal year 2024 financial results conference call at.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to westar one one on your telephone.

Adam I think Mr advertising Johan <unk> Suisse. Please note that today's conference is being recorded.

I will now hand, the conference over to your speaker host.

John Colbert, Vice President corporate strategy and Investor Relations. Please go ahead.

Edward B. Meyercord: We're assuming no incremental amount, as you say, nut in the fourth quarter. We assume absorption will occur in the third quarter with no more absorption needed in the fourth quarter. What we need to see is the market. The entire market is down right now. This is not just an extreme issue.

Thank you Olivia and good morning, everyone and welcome to extreme networks second quarter 2024 earnings Conference call.

I'm staying kofler, Vice president of corporate strategy and Investor Relations with me today are extreme networks' president and CEO at <unk>, and executive Vice President and CFO, Kevin Rhodes.

We just distributed a press release and filed an 8-K detailing extreme networks' financial results for the quarter.

Kevin Rhodes: This is an exogenous issue that's across all IT and all networking. And so, what we see and what we hope is that the market starts to come back and that we will see the North American market come back and appreciate your point, but we've got to get the whole market to come back and spend across the board to help. Great. Thanks.

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

Operator: Okay. Thank you. And I will now turn the call back over to Mr. Ed Meyercord for any closing remarks. Okay. Thank you.

These risks are described in our risk factors in the 10-K report for the period ended June 32023, and subsequent 10-Q reports 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.

Edward B. Meyercord: Thank you, everybody, for participating in the call, and obviously, we'll have callbacks with many of you. And we appreciate all the good questions. I also want to take time to thank our employees, customers, and partners who are participating here and for all the work as we're transitioning through this cycle and putting ourselves on more normalized footing, as we've been talking about. Yeah, we're absolutely looking forward to putting this chapter behind us, and yeah, we're committed to innovating in the industry and continuing to deliver new solutions, and we're committed to these strategic initiatives that we So thanks everybody and and have a good day.

Following our remarks, we will take your questions.

Now I will take the I will turn the call over to extremes, President and CEO Ed <unk>.

Thank you Stan and thank you all for joining us this morning.

Our second quarter results were in line with our previously announced revised Q2 outlook. We did have some highlights in the quarter SaaS AOR grew 37%, which reinforces the value of our differentiated cloud platform. We have 44 customers who spent over $1 billion on extreme solutions demonstrating both.

Customer retention and our ability to take new logos from larger competitors and gross profit of 62, 5% showing continued improvements and the benefit of a higher mix of high margin recurring revenue.

Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect. Thank you for watching! ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good day, and thank you for standing by.

At a high level the networking industry is exiting the final stage of the Covid induced era of supply chain constraints, which has significantly impacted our business.

Operator: Welcome to Xtreme Networks' second 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. To ask a question during the session, you will need to press star 11 on your telephone.

We've made the conscious decision to put channel digestion behind us in the March quarter.

Our distributors and partners have lowered inventory purchases, which we expect to accelerate in the third quarter we.

We expect to emerge in the fourth quarter at a much more normalized level of revenue and earnings.

Stan Kovler: You will then hear an automatic message if your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Stan Kovler, Vice President of Corporate Strategy and Best Relations. Please go ahead. Thank you, Livia, and good morning, everyone.

Our bookings our bookings trends and funnel of new opportunities are strong indicators of customer demand while larger deals are still experiencing elongated sales cycles, particularly in North America, we continue to win against the competition on a bookings basis with an uptick in new logos.

EMEA business has stabilized and grew from the prior year and APAC bookings continue to grow over the prior year.

In addition to sequential and year on year funnel growth. We grew the number of transacting partners accounts and deal volume during the quarter.

Stan Kovler: Welcome to Extreme Network's second quarter 2024 earnings conference call. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations. With me today are Xtreme Networks President and CEO Ed Meyercord and Executive Vice President and CFO Kevin Rhodes.

These trends and the expanded go to market opportunities give us confidence that we are positioned for a return to meaningful growth in fiscal 'twenty five.

We've attracted a growing list of 14 managed service provider partners exiting the second quarter with seven already driving transactions.

We're positioned to expand our MSP footprint as partners are drawn to the simplicity of one cloud the flexibility of our unified hardware and our unique consumption billing model, we make it simple for these service providers to deliver seamless high quality networking experience to their customers.

Stan Kovler: 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 extremenetworks.com, along with our earnings presentation. Today's call and our discussion may include forward-looking statements based on our current expectations about Xtreme'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.

We've also made inroads establishing a private subscription offer through a highly targeted list of large service providers as noticed as.

As noted at our November Investor Day. This market segment opens a $5 billion addressable market.

In November we introduced extreme cloud Universal's <unk>, the first network security offering to integrate network application and device access within a single solution. This helps move organizations to a zero trust policy for all devices across the network. This combined with our industry.

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 to differ materially from those anticipated by these statements. These risks are described in our risk factors in the 10K report for the period ended June 30th, 2023, and subsequent 10Q reports 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 remarks, we will take your questions. Now I will turn the call over to Xtreme's president and CEO, Ed Meyercord. Thank you, Stan, and thank you all for joining us this morning. Our second quarter results were in line with our previously announced revised Q2 outlook. We did have some highlights during the quarter.

Leading campus fabric solution extends our value proposition in helping customers manage and secure their networks.

Yesterday, we launched new Wi Fi access points and the 4000 series Universal switches designed to help highly distributed enterprise organizations create improved network connectivity security and application performance.

Both of these new cloud managed platforms leverage AI ops and machine learning to deliver faster remediation and enhanced network visibility.

These new products also integrate well with extreme cloud universal <unk> to enhance network security posture.

The integration of AI security and analytics into a single platform is a key differentiator for as extreme as it allows us to bring greater simplicity and flexibility for customers.

This is why we continue to win large deals with manufacturers like LG energy solutions, leading health care facilities like NHS Trust hospitals in the U K educational institutions like London, South Bank University, Leeds Beckett in Kingston universities, and large venues like Wells Fargo Center and <unk>.

Edward B. Meyercord: SAS AOR grew 37%, which reinforces the value of our differentiated cloud platform. We have 44 customers who spent over $1 million on extreme solutions, demonstrating both customer retention and our ability to take new logos from larger competitors. And gross profit is 62.5%, showing continued improvements and the benefit of a higher mix of high-margin recurring revenue. At a high level, the networking industry is exiting the final stage of the COVID-induced era of supply chain constraints, which has significantly impacted our... We've made the conscious decision to put channel digestion behind us in the March quarter. Our distributors and partners have lowered inventory purchases, which we expect to accelerate in the third quarter.

Canada Life Center.

I've made previously announced leadership changes to streamline and strengthen our go to market capabilities.

Earlier this month Norman Rice was appointed as our Chief commercial officer and is now focused on driving revenue growth and leading the company sales partner in services organizations.

We successfully built our go to market sales motions in stadiums venues driving large opportunities with horizon, and Kroger and its been at the forefront of driving our new commercial opportunities with large service providers.

Valuable experience managing revenue operations with deep knowledge of our complex supply chain environment.

Our chief product and Technology officer, and available Hari is focused on increasing our SaaS revenue and his newly minted role as our GM of our subscription business.

We've also deepened our bench of SaaS expertise on the executive team over the past six months with the additions of our new Chief Marketing Officer Monica Kumar in December.

Edward B. Meyercord: We expect to emerge in the fourth quarter at a much more normalized level of revenue and earnings. Our bookings trends and funnel of new opportunities are strong indicators of customer demand. While larger deals are still experiencing elongated sales cycles, particularly in North America, we continue to win against the competition on a bookings basis with an uptick in new logos. Our EMEA business has stabilized and grown from the prior year, and APAC bookings continue to grow over the prior year. In addition to sequential and year-on-year funnel growth, we grew the number of transacting partner accounts and deal volume during the quarter. These trends and the expanded go-to-market opportunities give us confidence that we are positioned for a return to meaningful growth in Fiscal 25.

<unk> CFO, Kevin Rhodes last may the alignment of the team is crucial to helping accelerate growth and capture more share.

The extreme brand continues to get elevated in the marketplace through our customer wins and differentiated technology that creates more simplicity and flexibility across complex networking environments.

Our promise of one network, one cloud remains a competitive differentiator.

One network is underpinned by our universal hardware highlighted by campus fabric, which has unparalleled campus security benefits that allows users to segment networks 10 times faster than any competitor.

On cloud offers customers modern networking tools with built in AI ops and we're unique because we're the only provider to offer cloud choice, whether that's public private hybrid or edge.

Edward B. Meyercord: We've attracted a growing list of 14 managed service provider partners exiting the second quarter, with seven already driving transactions. We're positioned to expand our MSB footprint as partners are drawn to the simplicity of one cloud, the flexibility of our unified hardware, and our unique consumption billing model. We make it simple for these service providers to deliver seamless, high-quality networking experiences to their customers.

We are winning deals based on helping customers find new ways to deliver better outcomes, such as increased productivity reduced opex or securing their business.

The simplicity and flexibility of one network one cloud remains a competitive differentiator, particularly at a time when major competitors have created complexity with disjointed solutions and uncertainty in their long term rationalization of products and solutions, we remain the only pure play networking company.

Edward B. Meyercord: We've also made inroads by establishing a private subscription offer through a highly targeted list of large service providers. As noted at our November Investor Day, this market segment opens a $5 billion addressable market. In November, we introduced ExtremeCloud Universal's ETNA, the first network security offering to integrate network application and device access within a single solution.

With a differentiated and integrated portfolio and a clear road map.

We believe our exposure to the fastest growing areas in the networking market share gains and new go to market partnerships provide ample growth opportunities to drive double digit growth in the long term.

Edward B. Meyercord: This helps move organizations to a zero trust policy for all devices across the network. This, combined with our industry-leading campus fabric solution, extends our value proposition in helping customers both manage and secure their network. Yesterday, we launched new Wi-Fi 7 access points and the 4000 series universal switches designed to help highly distributed enterprise organizations create improved network connectivity, security, and application performance. Both of these new cloud-managed platforms leverage AI operations and machine learning to deliver faster remediation and enhance network feasibility. These new products also integrate well with Xtreme Cloud Universal's ZTNA to enhance network security. The integration of AI, security, and analytics into a single platform is a key differentiator for Xtreme, as it allows us to bring greater simplicity and flexibility for customers.

We're forecasting market share gains with targeted partners leveraging the strength of our unique solutions for the enterprise.

With that I'd like to turn the call over to our CFO, Kevin Rhodes to walk us through the results and guidance.

Thanks, Ed.

Lower revenue in the second quarter, we improved our gross margin sequentially and optimized our operating expenses to maintain a healthy operating margin profile or.

Our EPS was therefore impacted less than our revenue shortfall in the quarter.

In the second quarter, we took proactive action that enabled us to protect our profitability, while continuing to invest in our strategic initiatives.

We will continue to focus on aligning our cost structure accordingly, as we navigate this second half of our fiscal year let.

Let me get into the numbers.

Second quarter revenue of $296 4 million down 7% year over year and was in line with our revised outlook.

Product revenue of $186 6 million.

So 16, 5% year over year, reflecting continued channel digestion and elongated sales cycles that are impacting the networking industry.

These trends are consistent across both switching and wireless products.

Edward B. Meyercord: This is why we continue to win large deals with manufacturers like LG Energy Solutions, leading healthcare facilities like NHS Trust Hospitals in the UK, educational institutions like London South Bank University, Leeds Beckett, and Kingston Universities, and large venues like Wells Fargo Centre and Canada Life Centre. I've made previously announced leadership changes to streamline and strengthen our go-to-market capabilities. Earlier this month, Norman Rice was appointed as our Chief Commercial Officer and is now focused on driving revenue growth and leading the company's sales, partner, and services organization.

Our product backlog has normalized this quarter earlier than we initially anticipated.

Bookings approximated our product revenue for the first time in four quarters.

In fact, our bookings trends were positive in both EMEA and APAC, where each grew double digits year over year.

From a vertical perspective, while total bookings fell slightly both quarter over quarter and from the prior year, our healthcare education manufacturing and transportation Slash logistics vertical markets grew from the prior year.

We are encouraged by this level of customer activity, which informs our view that we will be able to get channel digestion phase behind us as quickly as possible.

Edward B. Meyercord: He successfully built our go-to-market sales motions in stadiums and venues, driving large opportunities with Verizon and Kroger, and has been at the forefront of driving our new commercial opportunities with large service providers. He has valuable experience managing revenue operations with deep knowledge of our complex supply chain environment. Our chief product and technology officer, Nabeel Buhari, is focused on increasing our SaaS revenue in his newly minted role as our GM of our subscription business. We've also deepened our bench of SaaS expertise on the executive team over the past six months with the additions of our new Chief Marketing Officer, Monica Kumar, in December and CFO, Kevin Rose last May. The alignment of the team is crucial to helping accelerate growth and capture more share.

SaaS and.

Recurring revenue was a bright spot in our quarter.

SaaS AAR grew 37% year over year to $158 million driven by the strength of our renewals and activations of previously shipped products subscription.

Subscription deferred revenue was up 32% year over year to $246 million.

As we ship product from backlog, it's generating a tailwind for SaaS growth.

Total subscription and support revenue was $110 million up 16% year over year.

This growth was largely driven by the strength of our cloud subscription revenue up 39% year over year.

Recurring revenue continues to be a positive at extreme.

Total recurring revenue of $101 million grew 14% year over year, and 6% sequentially to now 34% of total revenue.

Based on our current outlook, we expect recurring revenue to account for approximately 35% of the <unk>.

Edward B. Meyercord: The Xtreme brand continues to rise in the marketplace through our customer wins and differentiated technology that creates more simplicity and flexibility across complex networking environments. Our promise of one network, one cloud remains a competitive differentiator. One network is underpinned by our universal hardware, highlighted by Campus Fabric, which has unparalleled campus security benefits and allows users to segment networks 10 times faster than any competitor.

Full fiscal 2024 year revenue.

The growth in cloud subscriptions and maintenance drove the total deferred revenue to $549 million.

Up 23% year over year and 5% sequentially.

Gross margin was 62, 5% up 140 basis points from the prior quarter and up 400 basis points compared to the prior year ago quarter.

This is the third quarter in a row that we've achieved 60 plus percent gross margin, which has proven to be an achievable level for extreme at normalized scale.

Edward B. Meyercord: OneCloud offers customers modern networking tools with built-in AI operations. And we're unique because we're the only provider to offer cloud choice, whether that's public, private, hybrid, or edge. We're winning deals based on helping customers find new ways to deliver better outcomes, such as increased IT productivity, reduced stopbacks, or securing their business. The simplicity and flexibility of one network, one cloud, remain a competitive differentiator, particularly in a time when major competitors have created complexity with disjointed solutions and uncertainty in their long-term rationalization of products and solutions. We remain the only pure-play networking company with a differentiated and integrated portfolio and a clear roadmap. We believe our exposure to the fastest-growing areas of the networking market, share gains, and new go-to-market partnerships provide ample growth opportunities to drive double-digit growth in the long term. We're forecasting market share gains with targeted partners leveraging the strength of our unique solutions for the enterprise. And with that, I'd like to turn the call over to our CFO, Kevin Rhodes, to walk us through the results and guidance. Thanks, guys.

We attribute this to improvements in mix due to the higher contribution of subscription and support revenue and an improvement in supply chain and distribution related costs.

Our second quarter operating expenses were $141 million.

Down $12 million from $153 million in the first quarter and up slightly from $139 million in the year ago quarter.

We plan to take additional actions to further optimize our operating expenses to the level of revenue we expect to achieve in the second half of fiscal 2024 in order to preserve our margin structure in the fourth quarter and into fiscal 2025.

Operating margin for the second quarter was 14, 8% down from 17, 7% and similar to 14, 9% in the prior year quarter.

This was the sixth quarter in a row of double digit operating margins.

Also an achievable level for the company at normalized scales.

All in second quarter non-GAAP earnings per share was 24.

Down from 25 in the first quarter and 27 in the year ago quarter.

We finished the quarter with $221 million in cash and net cash of $26 million. After repurchasing another $25 million of our shares we've repurchased $153 million worth of our shares over the past five quarters.

The $28 6 million of free cash flow, we generated in the quarter was impacted by lower revenue and the use of working capital for purchases of raw materials and inventory based on our prior year purchase commitments.

Kevin Rhodes: Despite lower revenue in the second quarter, we improved our gross margins sequentially and optimized our operating expenses to maintain a healthy operating margin profile. Our EPS was, therefore, impacted less than a revenue shortfall in the quarter. In the second quarter, we took proactive action that enabled us to protect our profitability while continuing to invest in our strategic initiatives. We will continue to focus on aligning our cost structure accordingly as we navigate this second half of our fiscal year. Let me get into the notes. Second quarter revenue of $296.4 million sold 7% year-over-year and was in line with our revised outlook. Product revenue of $186.6 million sold 16.5% year-over-year, reflecting continued channel digestion and elongated sales cycles that are impacting the networking industry. These trends are consistent across both switching and wireless products.

We expect a recovery in cash flow as revenue recovers and component purchases become more balanced with normalized sell through rates.

Now turning to guidance.

This quarter, we expect sell through to be significantly higher than sell in.

Which we believe will have a meaningful impact on our operating results.

Quantify this impact we expect a $40 million to $50 million reduction in channel inventory in the third quarter, which will allow us to cover to a more normalized level of revenue in the fourth quarter.

As a result, we plan to take further cost actions to drive a recovery in earnings per share and cash flow.

Heading into the fourth quarter, we're expecting improved sequential revenue growth based on our funnel and the seasonality of our business led by our education vertical.

We believe our proactive approach to managing through this industry challenge will enable us to deliver improved growth and profitability in fiscal year 2025.

Kevin Rhodes: Our product backlog normalized this quarter earlier than we initially anticipated, and our bookings approximated our product revenue for the first time in four quarters. In fact, our bookings trends were positive in both EMEA and APAC, where each grew double digits year over year. From a vertical perspective, while total bookings fell slightly, both quarter over quarter and from the prior year, our healthcare, education, manufacturing, and transportation slash logistics vertical markets grew from the prior year. We are encouraged by this level of customer activity, which informs our view that we will be able to get the channel digestion phase behind us as quickly as possible. Recurring revenue and SAS ARR were a bright spot in our quarter. SAS ARR grew 37% year-over-year to $158 million, driven by the strength of our renewals and activations of previously shipped products. Subscription-deferred revenue was up 32% year-over-year to $246 million.

For the third quarter, we expect as follows.

Revenue to be in a range of $200 million to $210 million.

Gross margin to be in a range of 59, 5% to 61, 5%.

Operating loss to be in a range of 12, 4% to eight 8% in.

Loss per basic share in the range of 22 to 17.

A basic share count is expected to be around 129 million shares.

Looking further ahead into our fourth quarter, we expect revenue to be in a range of $2 $65 million to $275 million.

Gross margins to be flat to slightly up from the third quarter.

non-GAAP operating margin to be in a range of 10% to 13%.

GAAP operating margin to be 1% to 4%.

Fully diluted share count of 131 to 132 million shares.

With that I'll now turn the call over to the operator to begin the question and answer session.

Thank you.

Ladies and gentlemen to ask a question you will need to Westar one one on your telephone and wait for your name to be announced to withdraw. Your question you May Press Star one again, please standby, while we compile to Kenny roster.

Our first question coming from the line of.

Kevin Rhodes: As we ship product from backlog, it's generating a tailwind for SAS. Total subscription and support revenue was $110 million, up 16% year-over-year. This growth was largely driven by the strength of our cloud subscription revenue, up 39% year over year. Recurring revenue continues to be a positive at extreme. Total recurring revenue of $101 million grew 14% year-over-year and 6% sequentially to now 34% of total revenue.

Eric <unk> from Lake Street Capital markets. Your line is now open.

Yes, I wanted to address the leadership change here and.

How we're going to be approaching the channel differently than we were before.

If you could talk a little bit about.

Norman Rice is going to be doing I guess.

Sort of lost touch with the channel demand.

Those are my words, not yours, but what are we doing to help improve that channel monitoring whats what processes are ignoring nor with putting in place.

Yes.

Thanks, Thanks, Eric.

What are the one of the first things that.

Norman is done.

Kevin Rhodes: Based on our current outlook, we expect recurring revenue to account for approximately 35% of the full fiscal 2024 revenue. The growth of cloud subscriptions and maintenance drove the total deferred revenue to $549 million, up 23% year-over-year and 5% sequential. Gross margin was 62.5%, up 140 basis points from the prior quarter and up 400 basis points compared to the prior year-ago quarter.

With our with our leadership teams is to Stratus.

Ratify our customer base and to split out.

<unk> is more run rate business in terms of business, that's less than 50000.

And order and what that business looks like which is going to be more channel driven.

And can be impacted more through distributors and.

And marketing activities.

And to provide more clarity to the project based business and.

And stratify that project based business.

And I'd say, that's that's a big change that that enormous bringing to the equation.

The other thing that I mentioned is Norman and Kevin where the architect behind our private subscription offer which.

Is it is it channel led.

Kevin Rhodes: This is the third quarter in a row that we've achieved 60 plus percent gross margin, which is proven to be an achievable level for extreme at normalized scale. We attribute this to improvements in mix due to the higher contribution of subscription and support revenue and an improvement in supply chain and distribution related costs. Our second-quarter operating expenses were $141 million, down $12 million from $153 million in the first quarter and up slightly from $139 million in the year-ago quarter. We plan to take additional actions to further optimize our operating expenses to the level of revenue we expect to achieve in the second half of fiscal 2024 in order to preserve our margin structure in the fourth quarter and into fiscal 2024. Operating margin for the second quarter was 14.8%, down from 17.7%, and similar to 14.9% in the prior year quarter.

Initiatives that we believe will be disruptive theres a lot of demand with some of the larger service providers that we have.

We're working with that.

Thats building up and I think youll start to see and we will we'll be in a position to announce.

Meaningful deals in the second half.

Of this year.

And I also mentioned earlier in my comments about the managed services.

Provider partners that we have who are signing up and it's the portfolio benefits in our technology benefits along with the unique capability that people are very interested in which is our consumption billing model.

Which provides for a lot of efficiency for that that go to market motion. So.

It's the stratification of the opportunities and I'd say, a more of a highly targeted approach to the channel to the core business.

Along with these targeted new commercial models that we're going going to market with and Norman is very well.

He is the best qualified person to lead us on that front.

Okay and then.

Looking at the guidance here.

Really dramatic reset.

Wondering was there a.

The prior year outlook because.

We had.

Kevin Rhodes: This is the sixth quarter in a row of double-digit operating margins, also an achievable level for the company at normalized scale. All in, second quarter GAAP earnings per share were $0.24, down from $0.25 in the first quarter and $0.27 in the year as a whole. We finished the quarter with $221 million in cash and net cash of $26 million after repurchasing another $25 million of our shares. We've repurchased $153 million worth of our shares over the past five quarters. The $28.6 million of free cash flow we generated in the quarter was impacted by lower revenue and the use of working capital for purchases of raw materials and inventory based on our prior year purchase commitment. We expect a recovery in cash flow as revenue recovers and component purchases become more balanced with normalized sell-through rates.

So our guidance reset coming out of Q1 and now we've had even more dramatic reset coming out of Q2.

The.

The confidence level here, we've got one month under our belt for Q3.

Are we seeing any evidence to say things are getting better as far as the.

Sequential step up in Q4.

Yes, Eric I mean, we commented on.

On the funnel and opportunities specifically.

Commenting on.

Progress that we've seen in <unk>.

<unk>.

In Asia Pacific.

And Kevin also touched on the fact that we're heading into E rate season, and this looks to be.

A pretty strong E rate season for us.

<unk>.

The declines.

Team as we were looking into Q2.

Our outlook for Q2.

And our plans to take down channel inventory.

The reality is we couldnt take inventory down nearly as much as that we had intended.

Kevin Rhodes: Now turning to guidance. This quarter, we expect sell-through to be significantly higher than sell-in, which we believe will have a meaningful impact on our operating. To quantify this impact, we expect a $40 million to $50 million reduction in channel inventory in the third quarter, which will allow us to cover to a more normalized level of revenue in the fourth quarter. As a result, we plan to take further cost actions to drive the recovery in earnings per share and cash. Heading into the fourth quarter, we are expecting improved sequential revenue growth based on our funnel and the seasonality of our business, led by our education vertical. We believe our proactive approach to managing through this industry challenge will enable us to deliver improved growth and profitability in fiscal year 2025. For the third quarter, we expect revenue to be in a range of 200 to 210 million dollars. Gross margin to be in a range of 59.5 to 61.5, operating loss to be in a range of 12.4% to 8.8%, and Lost Per Basic Share to be in a range of $0.22 to $0.17.

And I would say with the elongated sales cycles and with bookings pushing out the way they did it.

It only it only deepened our our position in the channel.

And we've got to make a decision as to whether or not we want to manage this out over time or take it all in one fell swoop and.

Our view and our perspective is to get it cleaned up and get more normalized as we head into Q4 and turned the corner on 25. So we are.

And that's that's how we've made the decisions that we're making.

Demand is obviously going to be masked by inventory flowing out of the channel and Thats, a $40 affiliate $40 million to $50 million number.

You heard Kevin talk about and that as we go into Q4, we do have seasonality and we are expecting more neat normal seasonality as we go into that quarter and we have the E rate business and we have a significantly larger funnel.

And that's what gives us confidence so where.

We are we're very focused on the clean up here this quarter and then <unk>.

Delivering and exceeding.

The.

Our outlook for the June quarter.

Thanks for taking my questions.

Thanks, Ed.

Okay.

Thank you.

And our next question coming from the line of.

Timothy Horan with Oppenheimer. Your line is open.

Thanks, guys.

Just talk about maybe the end user demand our customers may be waiting for Wi Fi seven or C brs or further upgrades to cloud.

Kevin Rhodes: A basic share count is expected to be around $129 million. Looking further ahead into our fourth quarter, we expect revenue to be in a range of $265 to $275 million. Gross margins to be flat to slightly up from the third quarter, non-GAAP operating margin to be in a range of 10 to 13 percent, gap operating margin to be one to four percent, and a fully diluted share count of 131 to 132 million shares. With that, I'll now turn the call over to the operator to begin the question and answer session. Thank you. Ladies and gentlemen, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced.

Just any color what's going on because the step down next quarter's guidance versus what you were thinking six months ago.

Credibly dramatic Chan.

Channel numbers that you just gave it seems only tell part of the story.

Yes.

Yes, Tim I think you are.

Youre seeing a much more conservative outlook as it relates to demand.

Yes in some cases in Wi Fi market, there will be some people that are holding off on Wi Fi seven.

We've talked about elongated sales cycles, which has been very real and the U S, where we've had verbal commitments for pretty exciting wins for extreme but the deals themselves have.

Operator: To withdraw your question, you may press star 1-1 again. Please stand by while we compile the Q&A roster. That's our first question coming from the lineup. Erik Martinuzzi from Lake Street Capital Market, New Zealand is open.

Been pushed out and when we look at deals in our funnel that get to the commit level.

We close on those deals it's more of a function of time so.

We're looking at this as timing.

If you look at.

And this is why we're providing guidance for Q4 were were confident in the guide and how we're going to come out of that in Q4, but we are setting we are setting that base level.

Eric Martinuzzi: Yeah, I wanted to address the leadership change here and how we're going to be approaching the channel differently than we were before. If you could talk a little bit about what Norman Rice is going to be doing. I guess we sort of lost touch with channel demand. Those are my words, not yours.

At a more conservative level than we had in the past.

And I'd say you tend to your point I think we're feeling a little bit burned in terms of what we were expecting to close in the funnel.

And we've gone back and taken a fresh view of that and.

Edward B. Meyercord: But what are we doing to help improve that channel monitoring? What processes is Norman putting in place? Yeah, thanks.

Our view is to put it behind us and reset.

Here with a clean past clean path going forward.

As we look into fiscal 'twenty five.

Edward B. Meyercord: Thanks, Erik. You know, one of the first things that Norman has done, and with our leadership teams, is to stratify our customer base and to split out what is more run-rate business in terms of business that's less than $50,000 in order, and what that business looks like, which is going to be more channel-driven and can be impacted more through distributors and marketing activities, and to provide more clarity to the project-based business and to stratify that project-based business. And I'd say that's a big change that Norman's bringing to the equation. You know, the other thing that I'll mention is that Norman and Kevin, you know, are the architects behind our private subscription offer, which is a channel-led initiative that we believe will be disruptive.

There will be some tough comps if we look at the.

Q1, and Q2, but as we get into calendar 'twenty five we see ourselves on a really nice and a very strong footing for driving double digit growth and resuming where we left off.

And so why five seven can you maybe just talk about how much of an improvement it is for the customers or your benefits.

Maybe.

How does the pricing of the product look like.

Our ability to supply it and then just lastly on Wi Fi seven and it is.

What the competitive environment looks like how do you think this is one of the things kind of driving the elongated sales cycles, our customers waiting for this.

Yes.

I think it's fair to say that there are going to be some customers in the marketplace that are waiting on this.

The benefit that you have in Wifi seven as you have the different frequency bands.

And do you have.

In our case.

Higher bandwidth.

Which is important and then.

Edward B. Meyercord: There's a lot of demand from some of the larger service providers that we're working with. That's building, and I think you'll start to see, and we'll be in a position to announce, meaningful deals in the second half of this year. And I also mentioned earlier in my comments about the managed services provider partners that we have who are signing up. And there are the portfolio benefits and our technology benefits along with the unique capability that people are very interested in, which is our consumption billing model, which provides for a lot of efficiency for that go-to-market motion. So it's the stratification of the opportunities, and I'd say a more highly targeted approach to the channel to the core business, along with these targeted new commercial models that we're going to market with. And Norman is very good, you know; he's the best qualified person to lead us on that front.

Also bringing.

Dual band in terms of speeds.

And so theres a lot more flexibility in the solution. So.

Every time you have these upgrades there is higher higher quality in terms of connectivity.

In this case theres more bandwidth.

There is more flexibility in terms of end user devices that we pick up on different frequencies.

And then we have the.

Dual bandwidth capabilities in terms of of how we connect to the network.

This Wi Fi service for Us as cloud managed.

In addition to our 4000 series switch, which is purely cloud managed.

We're bringing some unique capabilities that provide a lot of advantages in terms of how to deploy them.

And run networks relative to the traditional C&I model.

Our provisioning and network deployments can be done in a much more efficient fashion and in a more automated way. So yes, there are a lot of benefits and what's coming out and our most recent releases.

Eric Martinuzzi: Okay, and then looking at the guidance here, just a really dramatic reset. I'm wondering if there was a prior year outlook because we had... A guidance reset coming out of Q1, and now we've had an even more dramatic reset coming out of Q2. The confidence level here, we've got one month under our belts for Q3. Are we seeing any evidence to say things are getting better as far as this sequential step up in Q4 is concerned? Yeah, Eric. We commented on the funnel and opportunities, specifically commenting on progress that we've seen in EMEA and in Asia-Pacific. And Kevin also touched on the fact that, you know, we're heading into E-rate season. And, you know, this looks to be a pretty good E-rate season for us.

And.

In terms of in terms of opportunities it could have an impact and when does it start shipping at scale.

Yes.

We are <unk> at this point, so I think you would expect to see.

Shipping from Wi Fi seven.

Beginning in Q3, and really ramp up and begin to ramp in Q4.

Thank you.

Okay.

Thank you.

Our next question coming from the line of David Buck with UBS. Your line is open.

Great. Thanks, guys for taking my questions maybe to start on the competitive landscape, but that dynamic I think you guys spent a lot of time talking about.

Taking sort of the inventory destocking.

Eric Martinuzzi: The, you know, declines came as we were looking into Q2, our outlook for Q2, and our plans to take down channel inventory. The reality is, we couldn't take inventory down nearly as much as we had intended. And I would say with the elongated sales cycles and with bookings pushing out the way they did, it only deepened our position in the channel. And we had to make a decision as to whether or not we want to manage this out over time or take it all in one fell swoop.

Pain short term, but you also talked about normal seasonality in Q4 and talking about gaining share over the long term can you maybe just kind of talk about what you're seeing competitively in the market. Today that gives you confidence that we can get back to share gains over the intermediate and longer term and then I have a follow up question as well.

<unk>.

Yes, David Thanks So.

Yes, I'll comment on that and what gives us confidence is what we see happening in the market every day and we've talked about the largest competitor in the space that has a very different cloud solution and we continue to see the industry moving to cloud and we have a leadership position in cloud.

Edward B. Meyercord: And, you know, our view and our perspective is to get it cleaned up and normalized as we head into Q4 and turn the corner on 25. So we are, yeah, and that's how we've made the decisions that we're making. Demand is obviously going to be masked by inventory flowing out of the channel, and that's a $40 to $50 million number that you heard Kevin talk about. And then as we go into Q4, we do have seasonality, and we are expecting more normal seasonality as we go into that quarter, and we have the E-rate business, and we have a significantly larger funnel. And that's what gives us conflict.

No.

The largest player in the marketplace has got a very different cloud solution from the traditional enterprise solution.

In addition to that they continue to invest in other markets and so the level of complexity that we're feeling in the marketplace surrounding the largest competitor is.

Is very real and opens up a lot of opportunities we've talked about some of the larger deals that we're getting into we continue to move up market and Youll see us.

Continuing to do this with some of the announcements that will come out of extreme weather.

In these highly competitive and highly contested.

Eric Martinuzzi: So we're, we're, we're, we're very focused on the cleanup here this quarter and then delivering and exceeding our outlook for the June quarter. Thanks for taking my questions. Yeah, thanks, Erik. Thank you. And our next question comes from the line of Timothy Horan, Wood Oppenheimer, and Yolanda Selpin.

Hi.

The processes were coming out on top.

So youre seeing the likes of Cisco and HPE and juniper getting pushed back.

So youre seeing the likes of Cisco and HPE and juniper getting pushed back.

And extreme winning and that's part of our up leveling our brand so.

That's one of the ways that we have confidence relative to the largest player.

Everyone is very top of mind, the HP acquisition of Juniper.

What will that mean in our case it means that one of our competitors will be going away.

Timothy Horan: Thanks, guys. Kitty, just talk about maybe end user demand. Are our customers maybe waiting for Wi-Fi 7 or CBRS or further upgrades to the cloud? You know, just any color on what's going on? Because, you know, the step down, you know, next quarter's guidance versus what you were thinking six months ago, you know, incredibly dramatic channel numbers that you just gave. You don't need to tell part of the story

We.

We see a lot of opportunities certainly over the next couple of years as Theyre looking to rationalize their product portfolios.

This is going to create opportunities in fact, it already has where were already getting calls from <unk>.

Customers direct customers and end users in the field.

As well as partners, who are concerned and very unsure about what does that product roadmap look like and what is it going to look like.

And now.

This gives us.

These just create.

Edward B. Meyercord: Yeah, Tim, I think that you're seeing a much more conservative outlook as it relates to demand. Yes, in some cases in the Wi-Fi market, there will be some people that are holding off for Wi-Fi 7. We've talked about elongated sales cycles, which have been very real in the US, where we've had verbal commitments for pretty exciting wins for Xtreme, but the deals themselves have been pushed out. And when we look at deals in our funnel that get to the commit level, you know, we close on those deals. It's more of a function of time.

They create more opportunity for us.

No great. That's helpful and maybe just a follow up you talked about a strong E rate season, coming up and getting back to hopefully some degree of normal seasonality by the June quarter.

Recognizing that obviously in the first half of fiscal 'twenty five as difficult comps on a year over year basis.

Are you planning for what I would consider to be more normal seasonal behavior on a quarter over quarter basis as we get through June going forward or is there still some digestion from whether it's order growth intake underlying demand slash.

Sort of channel digestion that we should expect as we go through the second half of this calendar year into 25.

Timothy Horan: So, you know, we're looking at this timing. If you look at, and this is why we're providing guidance for Q4, we're confident in the guidance and how we're going to come out of this in Q4. But we are setting that base level at a more conservative level than we have in the past. I'd say, Tim, to your point, I think we're feeling a little bit burned in terms of what we were expecting to close in the funnel, and we've gone back and taken a fresh view of that, and our view is to put it behind us and reset, here with a clean path to going forward. As we look into fiscal 25, there will be some tough comps if we look at Q1 and Q2.

And then just maybe one final one for Kevin if I could slip it in there you mentioned, obviously double digit margins at normalized scale I think the phrase was.

Love to get some more color on how he's thinking about it because I know at the analyst day, you. Obviously, you guys had talked about.

Margins above let's call it fiscal 'twenty two levels back into the mid teens, but just wanted to get more color on.

What scale do you need to get to you to get back to margins that are more robust than let's say fiscal 'twenty.

And I'll cover the first part of the question and then Kevin I'll, let you jump in and cover the second part.

We're looking I think.

Yes more traditional.

Seasonality as you look at the shift going from.

Q1.

Q4 into Q1 to Q2 et cetera, I think in the core business.

Edward B. Meyercord: But as we get into calendar 25, we see ourselves on a really nice and very strong footing for driving double-digit growth and resuming where we left off. And so, Wi-Fi 7, can you maybe just talk about how much of an improvement it is for the customers or your benefits and, you know, maybe... How does the pricing of the product look like, your ability to supply it, and then, just lastly, on Wi-Fi 7, you know what the competitive environment looks like, and do you think this is one of the things kind of driving the elongated sales cycles? Are our customers waiting? Yeah, I mean, I think it's fair to say that there are going to be some customers in the marketplace that are waiting for this. You know, the benefit that you have in Wi-Fi 7 is you have, you know, different frequency bands, and you have, in our case, higher bandwidth, which is important.

The outlier here is going to be some of the new commercial motions that we have that that are not likely to be.

And the same seasonal patterns. So some of the some of the larger deals that traditionally we would not have access to in terms of our private subscription offer for example.

We're not necessarily going to fall into that.

Traditional seasonal low of the core business and I'd say the same thing is true with our MSP business as that ramps, that's just going to be more of a steady incline then it will be good at it.

Traditional.

Seasonal business.

Kevin do you want to comment on the second second part of the question sure sure absolutely happy to.

Are we the reason why we gave the fourth quarter outlook is to actually show what we believe will be a more normalized we do believe we will grow off of Q4. So we're not thinking that that is like the new number forever. Because we have these opportunities with MSP at ESMO that will continue to.

Edward B. Meyercord: And then we're also bringing dual bands in terms of speeds, and so there's a lot more flexibility in the solution. So, yeah, every time you have these upgrades, there's higher quality in terms of connectivity. In this case, there's more bandwidth, there's more flexibility in terms of end user devices that we pick up on different frequencies. And then, you know, we have dual bandwidth capabilities in terms of how we connect to the network. You know, this Wi-Fi 7 for us is cloud managed, in addition to our 4000 series switch, which is purely cloud managed.

Mature and provide further growth in the future, but with Q4 being 10% to 13%. We believe that's a good jumping off point, but we will maintain.

Operating margins in the double digits.

Route.

This fourth quarter and throughout next year is our plan.

Like how much we can scale from where we were in 'twenty, three or 'twenty four and the future. We really have to go and spend a little bit more time looking at what our 'twenty five 'twenty six contributions youre going to be to get into that.

Higher realm.

Mid teens to high teens, EBIT EBIT, 20% scale.

Edward B. Meyercord: You know, and with this, we're bringing some unique capabilities that provide a lot of advantages in terms of how to deploy and run networks, relative to the traditional CLI model, where provisioning and network deployments can be done in a much more efficient fashion and in a more automated way. So, yeah, there are a lot of benefits to what's coming out in our most recent releases. And, yeah, in terms of opportunities, it could have an impact. And when does it start shipping at scale? We are GA at this point, so I think you would expect to see shipping from Wi-Fi 7 begin in Q3 and really ramp up and begin to ramp down in Q4.

But we do think it's possible I mean, we are already showing the disciplined that if we need to we could take costs out of the business to drive and keep our margins at that double digit level.

And what we need to do is we're more focused on that is continued to scale and grow the business and generate more profitability over time and thats exactly what <unk>.

<unk> intended to do is to continue to scale the operating margins over time.

Great. Thanks, guys.

Okay.

Thank you.

And as a reminder to ask a question. Please press star one.

Question coming from the line of Christian Schwab with Craig Hallum Capital. Your line is now open.

Hey, good morning, guys.

So add another.

It's become evident.

Timothy Horan: Thank you. And our next question, coming from the line of David Burt with UPS, CLN is open. Great. Thanks, guys, for taking my questions. Maybe to start on the competitive landscape and that dynamic, I think you guys spent a lot of time talking about taking sort of the inventory, destocking, you know, pain in the short term. But you also talked about normal seasonality in Q4, talking about gaining share over the long term. Can you maybe just kind of talk about what you're seeing competitively in the market today that gives you confidence that we can get back to share gains over the intermediate and longer term? And then I have a follow-up question as well. Yeah Dave, thanks.

Over earning during supply chain issues et cetera, et cetera, and competitors that having products.

When we look at your business, assuming baseline modest growth before we entered this period.

I come up with a number of about $1 billion, one plus or minus.

Is that kind of what you believe the business you know.

We're a little bit below that run rate March a little bit above that are kind of in that light in June is that kind of our starting point.

From from your top line growth initiatives is that fair or is that about the way you think about it at all.

I think it's fair.

We're going to build.

Operator: So, I'll comment on that. What gives us confidence is what we see happening in the market every day, and we've talked about the largest competitor in the space that has a very different cloud solution, and we continue to see the industry moving to the cloud, and we have a leadership position in the cloud. So, the largest player in the marketplace has a very different cloud solution from the traditional enterprise solution. In addition to that, they continue to invest in other markets, and so the level of complexity that we're feeling in the marketplace surrounding the largest competitor is very real and opens up a lot of opportunities. We've talked about some of the larger deals that we're getting into. We continue to move up market, and you'll see us continuing to do this with some of the announcements that will come out of Xtreme, where in these highly competitive and highly contested processes, we come out on top. And so, you're seeing the likes of Cisco and HP and Juniper getting pushed back and Xtreme winning, and that's part of how we're up-leveling our brand. So, that's one of the ways that we have confidence relative to the largest player. Yeah, everyone is very top of mind about the HP acquisition of Juniper. What will that mean?

Out of this and what we've said is Christian we used the language kind of more normalized to comment on.

On the June quarter.

And when you kind of run the math on some some growth on that kind of baseline business.

Get to the one dot one.

So I think Thats a fair assessment.

Kevin I don't know if you want to add to that or comment no I think youre right.

With Q4 being at that level, and then a jumping off point there.

With it being the new normal with continue we do believe that we will continue to grow the business, we'll have a better growth story in the second half of our fiscal year 'twenty five than the first half, but in general yes in terms of range.

A range of 1 billion one is the new normal is about right.

Okay.

<unk>.

Sure.

Is.

As normal work doing anything about.

Moving to selling product as a service.

Across the board in and putting the mechanisms in place to be more aggressive in that or is that something youre going to watch some of the other people in the industry due to see if there is a tremendous customer interest.

I think youre going to see us be a lot more aggressive and I.

I mentioned that the triumvirate of Norman stepping in and taking the lead as Chief commercial officer.

David Burt: You know, in our case, it means that one of our competitors will be going away. We see a lot of opportunities, certainly over the next couple of years, as they're looking to rationalize their product portfolios. This is going to create opportunities. In fact, it already has, where we're already getting calls from customers, direct customers, and end users in the field, as well as partners who are concerned and very unsure about what that product roadmap looks like. And what is it going to look like?

The deal is our chief technology, and Chief product officer, but he is also running across functional team on SaaS and subscription and one of the things that Youre seeing is really nice growth on the subscription line and really healthy margins on that subscription business and so.

Okay.

As we think about.

Growth, we have plans to continue that growth on the subscription line.

Also we have the benefit of.

Gross margins on that finally, we made a key hire Monica Kumar, who has come and join us.

Edward B. Meyercord: And this gives us, You know, these just create, they create more opportunities for us. Not great, but that's helpful. And maybe just to follow up, you talked about a strong E-rate season coming up and getting back to, hopefully, some degree of normal seasonality by the June quarter, although acknowledging that obviously the first half of fiscal 25 is difficult comps on a year-over-year basis. Are you planning for what I would consider to be more normal seasonal behavior on a quarter-of-a-quarter basis as we get through June going forward, or is there still some digestion from whether it's water growth intake, you know, underlying demand slash sort of channel digestion that we should expect as we go through the second half of this calendar year into the 25th? And then just maybe one final one for Kevin, if I could slip it in there.

I think she is going to be the glue between our product org and are selling or yeah, and I think we will we have an opportunity to be much more targeted and I would say much more aggressive.

In direct outreach to the market more broadly as well as <unk>.

More targeted with with the channel and we have some really interesting growth opportunities in the channel. So.

I think this represents a unique opportunity for extreme to really step up in the marketplace and thats, how we see it.

Okay, Great and then my last question.

The recent consolidation in the space.

You did a big consolidation.

Years ago.

And extremely confused your customer base.

But which products you were going to support and which products you were not going to support so I think with that as a backdrop should set you up to.

David Burt: You mentioned, you know, obviously, double-digit margins at a normalized scale. I think the phrase was, "We'd just love to get some more color on how he's thinking about it." Because I know the analysts say, "Obviously, you guys have talked about, you know, margins above, let's call it fiscal 22 levels back into the teens, but just wanted to get more color on, you know, what scale do you need to get to to get back to margins that are more robust than, let's say, And I'll cover the first part of the question, and Kevin, I'll let you jump in and cover the second part.

To be well positioned to take advantage of what could be.

Potential.

Confusion.

In the marketplace do you think that that will help be a competitive advantage for you to gain share.

We do.

It looks like.

The announcement it looks like the.

Edward B. Meyercord: We're looking, I think, at yes, more traditional... seasonality, as you look at the shifts going from, you know, Q1, you know, Q4 into Q1 to Q2, etc. I think in the core business that the outlier here is going to be some of the new commercial movements that we have that are not likely to be in the same seasonal patterns. So some of the larger deals that traditionally we would not have access to in terms of our private subscription offer, for example, are not necessarily going to fall into that, you know, the traditional seasonal flow of the core business. And I'd say the same thing is true with our MSP business, that ramps, that's just going to be more of a steady incline than it will be in a traditional seasonal business. Gavin, do you want to comment on the second part of the question? Sure. Sure, I'll be absolutely happy to.

HP was very interested in.

The AI platform that then.

Jennifer brings to the equation and that Juniper leadership will be heading the networking side, what does that mean to the massive installed base.

Aruba and Aruba technology.

Yes.

He has a lot of questions and for our customers. It raises an awful lot of questions and keep in mind Juniper is kind of an enterprise really from a service provider position and so in terms of the breadth of their portfolio.

They are still Miss was very much kind of.

Driving the efforts and in terms of the full end to end enterprise solution.

Not as robust and so how that incorporates and how that gets built into the the Aruba enterprise solution set.

There are a lot of questions out there.

That's going to create.

<unk> for us.

Kevin Rhodes: The reason why we gave the fourth-quarter outlook is to actually show what we believe will be a more normalized. We do believe we will grow off of Q4. So we're not thinking that that is like the new number forever because we have these opportunities with MSP and ESPO that will continue to mature and provide further growth in the future. But with Q4 being 10% to 13%, we believe that's a good jumping off point, but we will maintain operating margins and double digits throughout this fourth quarter and throughout next year. That is our plan. In terms of like how much we can scale from where we were in 23 or 24 in the future, we really have to go and spend a little bit more time looking at what our 25, 26 contributions are going to be to get into the higher realms of mid-teens to high teens, even to 20% scale beyond that. But we do think it's possible.

And we are very focused on a very clean and simple and flexible solution.

In terms of our universal hardware in terms of interfacing with one cloud.

This presents a very fresh alternative and a very clean alternative for customers that are out there.

The other thing that Youre aware of Christian from our prior.

M&A activities is that.

They baked a lot of synergy in there into the formula and.

When you look at 430 $450 million of expense coming out of the business.

Youre talking about thousands of people coming out of that business and where they come from and how that plays out.

Again, we'll create disruption.

And as I mentioned earlier, we've gotten calls from were already getting calls from employees and customers and partners. So.

We think this will present opportunities potentially hiring opportunities and new growth opportunities for us.

Kevin Rhodes: I mean, we are already showing the discipline that if we need to, we can take costs out of the business to drive and keep our margins at that double-digit level. And what we need to do is, and we're focused on that, continue to scale and grow the business and generate more profitability over time. And that's exactly what Ed and I are intending to do is to continue to scale the operating margins. Great. Thanks, guys. Thank you. And as a reminder, to ask a question, please press star one, one. And our next question, coming from the line of Christian Schwab with Gregg Helm Capital, Yelena Sokol. Hey, good morning, guys.

Great no other questions. Thank you.

Thank you.

Thank you and our next question coming from the line of Dave Kang with B Riley. Your line is open.

Thank you. Good morning. My first question is regarding bookings you reported that Asia and Europe were up double digits year over year. Just wondering if you can provide any color on North America bookings.

I mean, that's the color I would say that's the area, where we've been challenged in terms of the bookings.

We were close to a book to Bill ratio of one in the quarter. So that wasn't a positive news, but but but north America was down year over year.

Operator: So Ed, now that, you know, it's become evident of, you know, over earning during supply chain issues, etc, etc, and competitors not having product, you know, when we look at your business and baseline modest growth before we entered this period, and I kind of come up with a number of about, you know, a billion, one plus or minus. Is that kind of what you believe the business is, you know, we're a little bit below that run rate in March, a little bit above that, or kind of in that line in June. Is that kind of our starting point from your top line growth initiatives? Is that fair, or is that not the way you think about it at all?

Got it and then so it sounds like fiscal third quarter.

The inventory excess inventory.

Excess inventories will be flushed out so can we expect fiscal fourth quarter to be sort of like a clean channel inventory.

Yeah, that's exactly our intent is to get that clean and to as get.

Get normalized in the fourth quarter and beyond.

So it sounds like based on your I would just add we look at.

Obviously normalized.

Backlog has happened.

Quickly more quickly than than originally anticipated and as we look at entering Q4, we look at normalized backlog and normalized channel inventory.

Christian David Schwab: I think it's fair. We're gonna build something out of this. And what we've said is, and Christian, we use language that is kind of more normalized to comment on the June quarter. And when you kind of run the math on some growth on that kind of baseline business, you get to the 1.1. So I think that's a fair assessment. Kevin, I don't know if you want to add to that or comment. No, I think you're right, Ed.

So that's somewhat of a clean slate as we head into Q4 and turn the corner into two fiscal 'twenty five.

And based on your fiscal fourth quarter Guide revenue guide you are implying that.

Orders will be up significantly.

Significantly sequentially from third to fourth quarter correct.

Yes, we got the E rate season, there we mentioned that earlier. So we will we are expecting sequential growth.

Our two strongest quarters in a year or the fourth quarter and the.

Edward B. Meyercord: I mean, with Q4 being at that level and then a jumping off point there, with it being the new normal, we do believe that we will continue to grow the business. We'll have a better growth story in the second half of our fiscal year 25 than in the first half. But in general, yeah, in terms of range, a billion is the new normal. And, you know, is Norman's work doing anything about moving to, you know, selling products as a service across the board and putting a mechanism in place to be more aggressive in that, or is that something you're going to watch some of the other people in the industry do to see if there's tremendous customer interest? I think you're going to see us be a lot more aggressive. And, you know, we've got the triumvirate of Norman stepping in and taking the lead as Chief Commercial Officer. Nabeel is our Chief Technology and Chief Product Officer, but he's also running a cross-functional team on SaaS and subscription.

Sorry, the second and fourth quarter of our fiscal year. So as we think about the June quarter, we got the E rate season, there, we've got a stronger pipeline.

Then we have in the third quarter here and we've got strong E rate season coming at us. So we are expecting sequential growth in bookings.

And my last question is Ed you mentioned that fiscal 'twenty five you're expecting meaningful growth just wondering if you can kind of.

To provide additional color should we expecting should we expect like a double digit.

Would that be meaningful.

That's correct and that's how we're thinking about it David So we looked at.

There is going to be a tough comp in the first quarter.

Given that we landed at $3 53 last year.

Or this.

Q1 of this year.

Then I think you get to the.

The second half as we turned the corner into calendar 'twenty. Five obviously, we will have a very a much easier comp in Q3, but we expect that our marketing initiatives.

Our go to market initiatives in terms of the core business and then the realization of these new commercial models.

Edward B. Meyercord: And, you know, one of the things that you're seeing is really nice growth on the subscription line and really healthy margins on that subscription business. And so, you know, we, you know, as we think about growth, we have plans to continue that growth on the subscription line. Also, we have the benefit of gross margins on that. You know, finally, we made a key hire, Monica Kumar, who's come and joined us.

Debt that are growing but they haven't really had an impact on our financials yet.

By the time, we get to that calendar.

25 timeframe youll start to see a much more meaningful impact of those initiatives coming into play and adding to growth over just what we would consider to be kind of a core market growth.

Edward B. Meyercord: You know, I think she's going to be the glue between our product orgs and our selling orgs. And I think we'll have an opportunity to be much more targeted, and I would say much more aggressive, in direct outreach to the market more broadly, as well as more targeted with the channel. And we have some really interesting growth opportunities in the channel. So, I think this represents a unique opportunity for Xtreme to really step up in the marketplace. And that's how we see it.

Got it thank you.

Thank you.

Our next question coming from the line of Alex Henderson with Needham Your line is open.

So.

Your commentary about $1 $1 billion being the run rate revenue number and the guide for the.

Fourth quarter of fiscal year, $2 65 to $2 75.

Sure.

Yes.

Quote unquote more normalized.

Edward B. Meyercord: My last question has to do with the recent consolidation in the space. You did a big consolidation years ago and extremely confused your customer base about which products you were going to support and which products you were not going to support. So I think that that as a backdrop should set you up, you know, to be well positioned to take advantage of what could be potential confusion in the marketplace. Do you think that that will help be a competitive advantage for you to gain share? We do!

There's a little bit troubling considering.

In the fourth quarter of 2019, you did $252 million for the full year 2019, you did roughly a $1 billion at $995 8 million.

And that's 2019 that would put a growth rate.

Your quote unquote normalized $1 $1 billion of around two 5% over that timeframe.

Certainly you would not say that that's a reasonable growth rate so.

Question I have for you is what is the real normalized number if you were to adjust.

These numbers too.

Christian David Schwab: You know, from the announcement, it looks like HP was very interested in the AI platform that Juniper brings to the equation and that Juniper leadership will be heading the networking side. What does that mean to the massive installed base of Aruba and Aruba technology? It's, you know, it raises a lot of questions.

Fully normalize the the baseline you say $1 $1 billion is normalize, but I don't think.

Believe euro 2.5% growth company. So can you please adjust.

That language a little bit for us.

Understanding how much the fourth quarter is still a normalized as opposed to more normalized and what would be the run rate of revenue. If you had a fully normalized full year.

Edward B. Meyercord: And for customers, it raises an awful lot of questions. And keep in mind that Juniper has come at enterprise really from a service provider position. And so in terms of the breadth of their portfolio, they are still, you know, MIST was very much kind of driving the efforts. And in terms of the full end-to-end enterprise solution, it's not as robust. And so how that integrates and how that gets, you know, built into the Aruba enterprise solution set, there are a lot of questions out there.

Thank you.

Yes, so let.

Let me Kevin just yes.

Hit the just hit a high level and then I'll, let you come in and fill in but Alex where obviously, it's a pretty massive reset here.

<unk>.

Our Q3.

Yes.

A lot of cleanup involved.

We have.

We have new teams and we have a new approach that are coming in and looking to sort of build off of the base.

Operator: And I think that's going to create opportunities for us. And, you know, we're very focused on a very clean and simple and flexible solution in terms of our universal hardware, in terms of interfacing with one cloud. This presents a very fresh alternative and a very clean alternative for customers that are out there. The other thing that, you know, you're aware of, Christian, from our prior, M&A Activities is that, you know, they've baked a lot of synergy into their, into the formula. And, you know, when you look at, you know, $430, $450 million of expense coming out of the business, you know, you're talking about thousands of people coming out of that business and where they come from and how that plays out, again, will create some disruption. And as I mentioned earlier, we've gotten calls from, we're already getting calls from employees and customers and partners. So.

And resetting the foundation.

Whether or not it would be normal seasonality going into Q1.

Or is there still conservatism in that.

Is that Q4 number where you could still see some growth sequential growth coming out of that.

We wanted to provide the outlook for.

For the.

Our fiscal Q4 to.

To provide again, what we're calling more normalized.

Will that be up.

Fully more normalized bookings number.

And there I think we need some work on that and we will definitely be coming back to you.

With a more refined outlook on how we see the evolution of booking, especially considering these other commercial models, which quite frankly, we have not included in our outlook.

I think thats the key.

I think that the MSP model is very nascent very early the <unk> model, we have as well as private subscription offers also very early in its stages.

Dave Kang: We think this will present opportunities, potentially hiring opportunities, and new growth opportunities for us. Great, no other questions, thank you. Yeah, thank you. Thank you. And our next question, coming from the lineup, is Dave Kang with Be Riley.

This is based on the run rate of the existing business and products. So we've got <unk> coming onboard we've got Wi Fi seven seven coming onboard we've got new products innovations coming out that will continue to give us a tailwind in the future right. Now we're just not prepared to go and guide for 2025 or beyond but wanted to give that at least the normalized Q4.

Dave Kang: Your line is open. Thank you. Good morning.

Dave Kang: My first question is regarding bookings. You reported that Asia and Europe were up double digits year over year. I was just wondering if you could provide any color on North America bookings.

And Alex the other the other comment to make is that we have seen.

Edward B. Meyercord: I mean, the color is, I'd say that that's the area where we've been challenged in terms of, you know, the bookings. We were close to a book to bill ratio of one in the quarter, so that was positive news. But, but, but North America was down year over year.

Earlier, we saw Asia Pacific.

Recovering more quickly.

And then we've seen EMEA come with with year over year growth.

As Kevin mentioned.

And we just haven't seen it yet in the Americans and so the timing of that Americas recovery to the normal buying cycle and how all of that kicks in from a timing perspective.

Dave Kang: And then so sounds like fiscal third quarter, you know, most of the inventories, excess inventories, will be flushed out. So can we expect fiscal fourth quarter to be sort of like a clean channel inventory? Yes, that's exactly our intent is to get that clean and to have it, you know, get normalized in the fourth quarter and beyond.

And we have a lot of large deals that we had.

That are in the hopper for us really exciting from a brand perspective in terms of where we are in these competitive processes.

But they are very lumpy and it's I think it's a little challenging for the team right down to stick their necks out and call. Some of these larger deals.

Edward B. Meyercord: So it sounds like I would just add, you know, obviously, normalized backlog has happened quickly and more quickly than originally anticipated. And as we look at entering Q4, we look at normalized backlog and normalized channel limits. So somewhat of a clean slate as we head into Q4 and turn the corner into fiscal 25. And based on your fiscal fourth quarter guide, revenue guide, you're implying that orders will be up significantly sequentially from third to fourth quarter, correct? Yeah, we got the E-rate season there.

That's not my problem.

My problem is the guide commentary that normalized full year revenue run rate would be $1 1 billion, which is obviously still incorporating a significant amount of.

Backlog adjustment and the comment that more normalized implies that it's almost normal and it's certainly not in the fourth quarter. So what is the nuts that youre assuming for the fourth quarter.

It would be fully normalized fourth quarter.

Okay.

Can you give us some sense of what more normalized in <unk>.

So the scaling of it.

Dave Kang: We mentioned that earlier. So we will, we are expecting sequential growth. A, you know, our two strongest quarters in a year are the fourth quarter and the second, sorry, the second and fourth quarters of our fiscal year. So as we think about the June quarter, you've got the E-rate season there, we've got a stronger pipeline than we have in the third quarter here. And we've got a strong E-rate season coming at us. So we are, Gross, and my last question is, Ed, you mentioned that Fiscal 25 is expecting meaningful growth. Just wondering if you can kind of provide additional color.

Yes.

I'm not sure we're there I'm not sure. We're there yet I mean, if we look at a $2 75 number.

Yes, if we look at it at $2 75 number in Q4, and obviously there is the math to get to one one.

When you just roll that over.

So theres not I guess, you would say there's not a lot of growth built into that for a normalized fiscal 'twenty five Alex.

Well I mean.

253, and fourth quarter of 2019, and now you're telling me $2 75 is close to normalized.

Edward B. Meyercord: Should we expect something like double digits? Would that be meaningful? That's correct. And that's how we're thinking about it, David. So we looked at that there was going to be a tough comp in the first quarter, given that we landed at 353 last year or this, you know, for Q1 of this year. Then, you know, I think you get to the second half as we turn the corner into calendar 25. Obviously, we'll have a much easier comp in Q3. But we expect that our marketing initiatives, you know, our go-to-market initiatives in terms of the core business, and then the realization of these new commercial models that are growing, that they haven't really had an impact on our financials yet, that by the time we get to that calendar 25 timeframe, you'll start to see a much more meaningful impact of those initiatives coming into play, and adding to growth over just what we would consider to be kind of I got it.

Difficult trying to understand reconcile those two numbers.

Even close to normalized in that context, so how big is the number we still absorbing $30 $40 million.

In the June quarter.

Inventory absorption.

Yes, Alex I mean, the thing that you're missing I think is the North America is still recovering it was down year over year I am not one thing anything.

I'm asking what the nut is you're assuming when you lose when you would give us the guidance for the fourth quarter in terms of the absorption and the recovery in the environment. We're assuming is that not we're assuming no no incremental amount as you say nuts in the fourth quarter, we assume.

The absorption will occur in the third quarter with no more absorption needed in the fourth quarter, what we need what we need to see is we need to see the market. The entire market is down right. Now. This is not just at extreme issue. This is exogenous issue that's <unk>.

Across all <unk>.

Networking and so where we see and what we hope is that the market starts to come back and that we will see the north American market come back and.

Dave Kang: Thank you. Thank you. And our next question, coming from the line of Alex Henderson with Needham, your line is open.

I appreciate your point, but like we've got to get the whole market to come back and spend.

Operator: So, your commentary about 1.1 billion dollars being the run rate revenue number and the guide for the... fourth quarter of the fiscal year at 265 to 275, which is Quote-unquote more normalized is a little bit troubling considering that for the fourth quarter of 2019, you did $252 million, and for the full year 2019, you did roughly a billion at $995.8 million, and that's for 2019. That would put a growth rate on your quote-unquote normalized $1.1 billion of around 2.5% over that time frame, and certainly you would not say that that's a reasonable growth rate. So the question I have for you is... What is the real normalized number if you were to adjust these numbers?

Across the board.

Great. Thanks, Okay.

Okay.

Yes.

Thank you.

And I will now turn the call back over to Mr. Ed <unk> for any closing remarks.

Okay. Thank you. Thank you everybody for participate participating on the call and obviously, we will have callbacks with many of you.

And we appreciate all the good questions I asked what it would take time to think.

Our employees.

And customers and partners, who are participating here and for all of the work is where we are transitioning through.

This cycle.

And putting ourselves on more normalized footing as we've been talking about.

Yes, we are.

Absolutely looking forward to putting us this chapter behind us.

And we're committed to innovating in the industry.

And continuing to.

Deliver new solutions and we're committed to these strategic initiatives.

Alex Henderson: fully normalized. You say $1.1 billion is normalized, but I don't think it is. 5% Growth Company. So, can you please adjust that language a little bit for us in terms of understanding how much the fourth quarter is still unnormalized? were normalized, and what would be the run rate of revenue if you had a fully normalized full year. Yeah, Alex, so let me, Kevin, just hit a high level, and then I'll let you come in and fill in.

That we will that will drive long term growth for us at extreme so.

Thanks, everybody and have a good day.

Ladies and gentlemen that does now conference for today. Thank you for your participation you may now disconnect.

Kevin Rhodes: But Alex, obviously, it's a pretty massive reset here in our Q3, you know, with a lot of cleanup involved. We have new teams, and we have a new approach that are coming in and looking to sort of build off of a base and reset the foundation. Whether or not it would be normal seasonality going into Q1, or is there still conservatism in that, you know, that Q4 number where you could still see some growth, sequential growth coming out of that? You know, we wanted to provide the outlook for the fiscal Q4 to provide, again, what we're calling more normalized, will we be, will that be a fully normalized bookings number? I think we need some work on that, and we'll definitely be coming back to you with a more refined outlook on how we see the evolution of booking, especially considering these other commercial models, which, quite frankly, we have not included in our outlook. I think that's the key. I think that the MST model is very nascent, very early. The ESPO model we have as well, the private subscription offer, is also very early and in stages.

Kevin Rhodes: This is based on the run rate of the existing business and products. So we've got ZT&A coming on board. We've got Y577 coming on board.

Kevin Rhodes: We've got new products and innovations coming out that will continue to give us that tailwind in the future. Right now, we're just not prepared to go and dine for 2025 or beyond, but we wanted to give at least the normalized Q4 at this point. And Alex, the other comment to make is that we have seen, earlier, Asia Pacific recovering more quickly, and then we've seen EMEA come with the year over year growth that Kevin mentioned. And we just haven't seen it yet in the Americas.

Kevin Rhodes: And so the timing of that America's recovery to the normal buying cycle and how all of that kicks in from a timing perspective. And we have a lot of large deals that are in the hopper for us. Really exciting from a brand perspective, in terms of where we are in these competitive processes, but they're very lumpy, and it's, I think it's a little challenging for the team right now to stick their necks out and call some of these larger deals.

Alex Henderson: That's not my problem. My problem is the commentary that the normalized full-year revenue run rate would be at $1.1 billion, which is obviously still incorporating a significant amount of backlog adjustment. And the comment that it's more normalized implies that it's almost normal, and it's certainly not in the fourth quarter. So what is the nut that you're assuming for the fourth quarter? What would be the fully normalized fourth quarter? Give us some sense of what more normalized means in terms of the scaling.

Edward B. Meyercord: Yeah, I mean, I'm not sure we're there yet. I mean, if we look at a 275 number in Q4 and obviously, you know, there's the math to get to 1.1 when you just roll that over. So there's not I guess you would say there's not a lot of growth built into that for a normalized fiscal 25 Alex. Well, I mean, you did 253 in the 4th quarter of 2019. And now you're telling me 275. Michael Miller, in the June quarter of inventory absorption. Yeah, Alex. I mean, the thing that you're missing, I think, is that North America is still recovering. It was down year over year.

Alex Henderson: I'm not missing anything. I'm asking what the nut is that you're assuming when you give us the guidance for the fourth quarter in terms of the absorption of the recovery in the environment. How big is that nut?

Kevin Rhodes: We're assuming no incremental amount, as you say, nut in the fourth quarter. We assume absorption will occur in the third quarter with no more absorption needed in the fourth quarter. What we need to see is the market. The entire market is down right now. This is not just an extreme issue. This is an exogenous issue that's across all IT and all networking.

Kevin Rhodes: And so what we see and what we hope is that the market starts to come back and that we will see the North American market come back and appreciate your point, but we've got to get the whole market to come back and spend across the board to help. Great. Thanks. Okay.

Operator: Thank you. And I will now turn the call back over to Mr. Ed Meyercord for any closing remarks. Okay, thank you.

Edward B. Meyercord: Thank you, everybody, for participating in the call, and obviously, we'll have callbacks with many of you. And we appreciate all the good questions. I also want to take time to thank our employees, customers, and partners who are participating here and for all the work as we're transitioning through this cycle and putting ourselves on more normalized footing, as we've been talking about. Yeah, we're absolutely looking forward to putting this chapter behind us, and yeah, we're committed to innovating in the industry and continuing to deliver new solutions, and we're committed to these strategic initiatives that we So thanks everybody and have a good day. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.