Q2 2025 Extreme Networks Inc Earnings Call
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 one one on your telephone you will then hear an automatic message advising Yohan. It's me. Please note that today's conference is being recorded I will now hand, the conference over to you have to go home.
<unk>. Please go ahead.
Speaker Change: Thank you Olivia and good morning, and welcome to extreme networks second quarter fiscal year 2025 earnings conference call I'm stakeholders Senior Vice President of corporate development and Investor Relations with me today are extreme networks', president and CEO admire cord and EVP and CFO, Kevin Rhodes, We just distributed a press release.
Speaker Change: Filed an 8-K detailing extreme networks' financial results for the quarter for your convenience a copy of the press release, which includes our GAAP to non-GAAP reconciliations is available in the Investor Relations section of our website at extreme Networks' Dot com along with our earnings presentation.
Speaker Change: Today's call and our discussion may include certain forward looking statements based on our current expectations about extremes future business financial and operational results growth expectations and strategies.
Speaker Change: All financial disclosures made on this call will be 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.
Speaker Change: These risks are described in our risk factors in the 10-K report for the period ended June 32024, and the 10-Q report for the period ended September 32024 filed with the SEC any.
Speaker Change: 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.
Speaker Change: A reconciliation of our non-GAAP results can be found in the press release and financial presentation.
Speaker Change: Following our prepared remarks, we will take questions and now I will turn the call over to extremes, president and CEO admire cord.
Speaker Change: Thank you Stan and thank you all for joining us this morning.
Speaker Change: Our results in the second quarter were highlighted by a continued and broad based recovery in the networking market.
We grew revenue sequentially for the third quarter in a row led by product revenues and achieved our best quarter of product bookings in five quarters.
Speaker Change: Our competitive win rates continue to improve especially with larger enterprise customers.
Speaker Change: In the quarter of 36 customers spent over $1 billion with extreme up from 27 last quarter.
Speaker Change: We're seeing a promising recovery with larger customers, which is creating meaningful share gains across a variety of verticals, including healthcare manufacturing and IRS.
Speaker Change: Our EMEA business grew significantly both sequentially and year over year in the Americas. We continued our strong execution the enterprise vertical Americas sequential growth was impacted by seasonality and the cadence 12 vertical.
Speaker Change: From what we see.
Speaker Change: Customers love, the simplicity and feature differentiation of our cloud networking platform.
Speaker Change: Only enterprise player that can deliver end to end networking solutions from the campus data center to the edge and across the wide area network from one cloud. In addition, our industry leading enterprise campus fabric continues to be a significant factor in winning new deals because it offers zero touch provisioning.
Speaker Change: <unk> provides the most resilience with sub second convergence significantly minimizing or eliminating downtime and minimizes the potential glass radius of lateral cyber attacks on the network.
Speaker Change: Our competitors simply cannot match. These features with their IP fabric designed for data centers.
Speaker Change: This quarter customers, such as Mooching clinic, the largest hospital network in Munich, Philadelphia International Airport the city in Temple, Texas invested in extreme fabric for its ability to deliver seamless connectivity reliability and rapid recovery, ensuring uninterrupted operations across their high demand environments.
Speaker Change: Our competitive displacements span a variety of verticals. We recently secured a multimillion dollar new logo win with the Pittsburgh Steelers to enhance their fan experience and optimize retail point of sale systems for greater stadium wide efficiency.
Speaker Change: Taylor Western large law firm in EMEA with 28 offices 200 employees wanted to untangle themselves from a complexity licensing structure of our largest competitor to simplify their operations.
Speaker Change: They chose extreme for the ease of use and scalability.
Speaker Change: Thank you.
Speaker Change: And our industry, leading premier services.
Speaker Change: We are encouraged by the early traction of our newer commercial models bookings for our MSP pilot program have doubled quarter over quarter and we currently have 37 MSP partners. These MSP is love the flexibility of a consumption based billing program because it lowers their operational overhead.
It was their own customers to scale at their own pace.
Speaker Change: This makes our offer sticky with upsell opportunities.
Speaker Change: We're also expanding our funnel with major customers with our private subscription targeted large service providers.
Speaker Change: Last quarter, we secured several large global wins with long term agreements that will drive high margin recurring revenue for extreme in the coming quarters.
Speaker Change: Extreme cloud Universal Zero Trust network access used <unk> is also gaining momentum. This SaaS solution integrates our mature network access control with zero Trust remote application access.
Speaker Change: This quarter, our new aerospace customer upgraded their wired and wireless infrastructure with extreme and adopted Uzi TNA for enhanced security.
Speaker Change: The value of the single policy engine and unified management of application and network access for both onsite and remote workers.
Speaker Change: Four years ago, we were the first in the industry to announce a universal platform for our unified wired and wireless portfolio.
Speaker Change: We combine the power of cloud management with next generation switches and access points that simplifies the deployment experience for our customers increased flexibility and allows customers to gradually adopt new technologies or change their desired use case by changing their OS or management.
Speaker Change: System without a hardware upgrade.
Speaker Change: In December we announced our vision for extreme platform, one an innovative technology platform that integrates extremes networking and security solutions by unifying all of our applications into a single interface.
Speaker Change: The core of the platform includes AI models that will drive impactful advances in automation to the networking experience.
Speaker Change: We previewed the platform with several of our partners and customers and the response was overwhelmingly positive. They all highlighted the significant time savings our teams would experience by having everything integrated into a single platform powered by AI and with the support of our AI expert.
Speaker Change: Platform won will drive significant productivity gains for ITE teams and network design deployment management.
Speaker Change: Commercial operations by reducing complex SaaS from days to hours and hours to minutes.
Speaker Change: Shortly after our launch in December CRM magazine named platform, one one of the 10 hottest networking products for 2024.
Speaker Change: We have a lot of exciting plans to expand upon our platform one story and capabilities, which will demonstrate at connect our annual user conference taking place in May in Paris before it goes GAA in our fiscal Q1.
Speaker Change: We anticipate further market share gains and revenue growth for the full year at a better than seasonal third quarter.
Speaker Change: We expect this growth to be accompanied by increased margins and cash flow for the full year.
Speaker Change: And with that I'd like to turn the call over to our CFO, Kevin Rhodes to walk us through the results and guidance.
Kevin Rhodes: Thank you Ed our.
Speaker Change: Our second quarter to third quarter in a row of sequential growth.
Speaker Change: Our strong gross margin performance and operating expense control demonstrated the strong operating leverage in our model.
Speaker Change: We achieved earnings per share of <unk> 21.
Speaker Change: Up 24% from the previous quarter and just above the high end of our guidance range.
Speaker Change: As for demand trends continue to improve gradually particularly with large customers.
Speaker Change: Second quarter revenue of $279 $4 million grew 4% sequentially based.
Based on 6% growth in product sales and attached subscription and support contracts professional services was down slightly year over year.
Speaker Change: On a geographic basis, our EMEA business grew quarter over quarter and year over year based on share gains and diversify our business to enterprise verticals.
Speaker Change: America's revenue declined sequentially due to difficult comparisons of significant deals that we closed earlier than expected in the first quarter.
Speaker Change: We do expect Americas to grow sequentially in the third quarter.
Speaker Change: Our APAC region grew 5% sequentially.
Overall this was the best bookings quarter in the last five quarters.
Speaker Change: Trends were in line with our revenue during the quarter and the product backlog was once again within our expected range.
Speaker Change: Channel inventory continued to improve.
Speaker Change: The pandemic levels and sellout was higher than sell in.
Speaker Change: But our product basis bookings were ahead of the prior four quarters with sequential strength in data center and double digit growth in wireless.
And a better than seasonal third quarter.
Speaker Change: Total subscription and support revenue was $107 1 million.
We expect this growth to be accompanied by increased margins and cash flow for the full year.
Speaker Change: Consistent with the first quarter.
Speaker Change: Our recurring revenue growth has been driven by the strength of our cloud subscription revenue.
And with that I'd like to turn the call over to our CFO, Kevin Rhodes to walk us through the results and guidance.
Speaker Change: Total recurring revenue was 37%.
Kevin Rhodes: Thank you Ed our.
Speaker Change: Our second quarter marked the third quarter in a row of sequential growth.
Speaker Change: On higher product revenue and a predictable revenue stream for our business.
Speaker Change: Our strong gross margin performance and operating expense control demonstrated strong operating leverage in our model.
Speaker Change: Our subscription deferred revenue was up 18% year over year to $290 million and our total deferred revenue was $589 million up seven 5% year over year.
Speaker Change: We achieved earnings per share of <unk> 21.
Speaker Change: Up 24% from the previous quarter and just above the high end of our guidance range.
Speaker Change: We expect subscription and support revenue to grow sequentially in the second half of the year. This reflects the difficult comparisons to the low product growth we experienced in the second half of fiscal 2024.
Speaker Change: Customer demand trends continue to improve gradually particularly with large customers.
Speaker Change: Second quarter revenue of $279 $4 million grew 4% sequentially.
Speaker Change: Gross margin of 63, 4% was relatively stable.
Speaker Change: Based on 6% growth in product sales and attached subscription and support contracts professional services was down slightly year over year.
Speaker Change: Down 30 basis points sequentially, largely due to product and subscription mix, but it was up 90 basis points European year on improvement in standard costs.
Speaker Change: On a geographic basis, our EMEA business grew quarter over quarter and year over year based on share gains and diversifying our business to enterprise verticals.
Speaker Change: The combination of higher product revenue versus subscription support drove our sequential results.
Speaker Change: America's revenue declined sequentially, owing to difficult comparisons of significant deals that we closed earlier than expected in the first quarter.
Speaker Change: We expect our gross margin to be in the range of 62% to 63% in the second half of fiscal 2025 also owing to mix.
Speaker Change: We do expect Americas to grow sequentially in the third quarter.
Speaker Change: Second quarter operating expenses were $136 million.
Speaker Change: In our APAC region grew 5% sequentially.
Speaker Change: Down $2 million sequentially and down $5 million from the year ago quarter.
Speaker Change: Overall this was the best bookings quarter in the last five quarters.
Speaker Change: We continued to focus on driving improvement in operating margin and higher profitability for the year.
Speaker Change: Trends were in line with our revenue during the quarter and the product backlog was once again within our expected range.
Speaker Change: We expect our operating expenses to increase to a range of $140 million to $146 million in the second half of the year.
Speaker Change: Channel inventory continued to improve to pre pandemic levels and sell out was higher than sell in.
Speaker Change: <unk> better than our previous expectations, despite a consistently positive revenue outlook.
Speaker Change: On a product basis bookings were ahead of the prior four quarters with sequential strength in data center and double digit growth in wireless.
Speaker Change: <unk> productivity and better efficiency from our new commercial models is driving this updated outlook.
Speaker Change: Total subscription and support revenue was $107 1 million <unk>.
Speaker Change: Operating profit for the second quarter was $41 2 million.
Speaker Change: Consistent with the first quarter.
Speaker Change: Recurring revenue growth has been driven by the strength of our cloud subscription revenue totaled.
Speaker Change: So a 14, 7% margin.
Up from $33 5 million or 12, 4% of revenue in the prior quarter.
Speaker Change: Total recurring revenue was 37%.
Speaker Change: On higher product revenue and a predictable revenue stream for our business.
Speaker Change: Second quarter earnings per share was <unk> 21.
Speaker Change: And grew from 17 last quarter, all above our guidance range.
Speaker Change: Our subscription deferred revenue was up 18% year over year to $290 million and our total deferred revenue was $589 million.
Speaker Change: We ended the quarter with $173 million in cash and net debt of $15 million.
Speaker Change: Up seven 5% year over year.
Speaker Change: Our inventory position also improved by $11 million sequentially, and we continue to target an inventory.
Speaker Change: We expect subscription and support revenue to grow sequentially in the second half of the year. This reflects the difficult comparisons to the low product growth we experienced in the second half of fiscal 2024.
Speaker Change: Closer to $100 million.
Speaker Change: And by year end.
Speaker Change: $16 million in free cash flow in the quarter reflects higher revenue and solid profitability.
Speaker Change: Gross margin of 63, 4% was relatively stable.
Speaker Change: We expect a continued recovery in cash flow for the second half of fiscal 2025, as we grow revenue and improve profitability.
Speaker Change: Down 30 basis points sequentially, largely due to product and subscription mix, but it was up 90 basis points you work a year on improvement in standard costs.
Speaker Change: Now turning to guidance.
Speaker Change: We are encouraged by the level of customer engagement and growth in the funnel, we are seeing which should bode well for us heading into the second half of the year.
Speaker Change: The combination of higher product revenue versus subscription and support drove our sequential results.
Speaker Change: As a result of our improved visibility we are increasing our full year guidance and providing a slightly narrower revenue range for the next quarter.
Speaker Change: We expect our gross margin to be in the range of 62% to 63% in the second half of fiscal 2025 also owing to mix.
Speaker Change: Second quarter operating expenses were $136 million down $2 million sequentially and down $5 million from the year ago quarter.
Speaker Change: For the third quarter, we expect guidance as follows.
Speaker Change: Revenue to be in a range of 276 million to $284 million.
Speaker Change: Gross margin to be in the range of 62% to 63%.
Speaker Change: We continued to focus on driving improvement in operating margin and higher profitability for the year.
Speaker Change: Operating margin to be in a range of 12% to 13, 7%.
Speaker Change: We expect our operating expenses to increase to a range of $140 million to $146 million in the second half of the year.
Speaker Change: Earnings per share to be in a range of 16 to 20.
Speaker Change: Our fully diluted share count is expected to be around $134 7 million shares.
Speaker Change: <unk> better than our previous expectations, despite a consistently positive revenue outlook.
Speaker Change: Improving cash generation and profitability, we are achieving this year will allow us to restart our practice of offsetting dilution from stock based compensation.
Speaker Change: Sales productivity and better efficiency from our new commercial models is driving this updated outlook.
Speaker Change: For the full fiscal year 2025, we expect revenue to be in a range of $1 billion $120 million to $1 billion $138 million.
Speaker Change: Operating profit for the second quarter was $41 2 million or 14, 7% margin up.
Speaker Change: Up from $33 5 million or 12, 4% of revenue in the prior quarter.
Speaker Change: And with that I'll now turn the call back to the operator to begin the question and answer session.
Speaker Change: Second quarter earnings per share was 21.
Speaker Change: Thank you, ladies and gentlemen to ask a question at this time, you will need to press star one on your telephone and wait.
Speaker Change: And grew from 17 last quarter, all above our guidance range.
Speaker Change: So my question is simply Scott, Taiwan again, please standby, while we compile the Q&A roster.
Speaker Change: We ended the quarter with $173 million in cash and net debt of $15 million.
Speaker Change: Okay.
Speaker Change: Our inventory position also improved by $11 million sequentially, and we continue to target an inventory balance closer to $100 million on hand by year end.
Speaker Change: Our first question coming from the line of Ryan <unk> with Needham Your line is open.
Ryan <unk>: Hi, great. Thanks for taking my questions.
Speaker Change: $16 million in free cash flow in the quarter reflects higher revenue and solid profitability we expect.
Speaker Change: Hi, nice quarter guys.
Ryan <unk>: The U S being down you attributed that to flow through.
Speaker Change: 12.
Speaker Change: And then EMEA being up any any particular vertical as you'd point to there and can you expand maybe on that those trends in the geographies. Thanks.
Speaker Change: The continued recovery in cash flow for the second half of fiscal 2025, as we grow revenue and improve profitability.
Speaker Change: Yes, Jack Kevin I'll jump in and then you can you can you come behind.
Speaker Change: Now turning to guidance.
We are encouraged by the level of customer engagement and growth in the funnel, we are seeing which should bode well for us heading into the second half of the year.
Speaker Change: K through 12 revenue Ryan is usually.
Speaker Change: Impacted by E rate and then just the general building cycle, where K 12 schools.
Speaker Change: As a result of our improved visibility we are increasing our full year guidance and providing a slightly narrower revenue range for the next quarter.
Speaker Change: Yes.
Speaker Change: They don't want to build.
Speaker Change: While kids and classes in session.
Speaker Change: For the third quarter, we expect guidance as follows.
Speaker Change: I think its a normal seasonality as it relates to K through 12, and E rate and Thats, where we felt it.
Speaker Change: Revenue to be in a range of 276 million to $284 million.
Speaker Change: We did see it.
Speaker Change: Gross margin to be in a range of 62% to 63%.
Speaker Change: Recovery, and I would say and broader Europe I will highlight however that we are still.
Speaker Change: Operating margin to be in a range of 12% to 13, 7%.
We are still being negatively impacted by a lack of government in Germany.
Speaker Change: And earnings per share to be in a range of 16% to 20 cents.
Speaker Change: Our fully diluted share count is expected to be around $134 7 million shares.
Speaker Change: And many people may be aware, we have a law.
Speaker Change: A lot of business there a large percentage of our EMEA business is concentrated in the German market.
Speaker Change: The improving cash generation and profitability. We are achieving this year will allow us to restart our practice of offsetting dilution from stock based compensation.
Speaker Change: And a lot of those government customers and a lot of those frame contracts are on hold.
Speaker Change: While the government sorts itself out.
Speaker Change: For the full fiscal year 2025, we expect revenue to be in a range of $1 billion $120 million to $1 billion $138 million.
Speaker Change: When that happens there is we expect pent up demand.
Speaker Change: Please from from that market.
Speaker Change: Yes.
Speaker Change: And with that I'll now turn the call back to the operator to begin the question and answer session.
Speaker Change: An encouraging step in the right direction overall in EMEA.
Speaker Change: But there's more to come there and then as it relates to K 12 pack in the U S. I think youll see that recover that recover as well.
Speaker Change: Thank you.
Speaker Change: And gentlemen to ask a question at this time, you will need to press star one on your telephone and wait.
Speaker Change: So my question is simply Scott, Taiwan again, please standby, while we compile the Q&A roster.
Speaker Change: Got it and sorry, sorry, we didn't read it.
Speaker Change: Maybe if you can a little better.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Got it.
Speaker Change: And in terms of FX any impacts from FX you guys hedge can you remind us.
Speaker Change: My first question coming from the line of Ryan <unk> with B Kim Your line is open.
Speaker Change: We do hedge Brian.
Hi, great. Thanks for taking my questions.
What we're trying to do is just offset any currency fluctuations.
Speaker Change: Hey, nice quarter guys.
Speaker Change: With U S being down you attributed that to K through 12.
Speaker Change: Lighter adjustments from one quarter to another we don't report anything on FX.
Speaker Change: And then EMEA being up any any particular vertical as you'd point to there and can you expand maybe on that those trends in the geographies.
Speaker Change: FX adjusted basis, just because we do hedge and we keep it pretty solid pretty even.
Speaker Change: Got it and just in closing up any thoughts about the latest gyrations in HP juniper and regulatory approval there.
Speaker Change: Yes, Kevin I'll jump in and then you can you can you come behind.
Speaker Change: K through 12 revenue Ryan is usually.
Speaker Change: I mean, I think our our view Ryan is that that combination is.
Speaker Change: Impacted by E rate and then just the general building cycle, where K 12 schools.
Speaker Change: Yes.
Speaker Change: That we would be a net beneficiary of those two companies coming together.
Speaker Change: They don't want to build a while while kids and classes and fashion.
Speaker Change: And.
Speaker Change: It's a normal seasonality as it relates to U K through 12 and E rate and that's where we felt it.
Speaker Change: Our expectation would be long term then that it would happen.
Speaker Change: Delays just creates more risk around.
Speaker Change: We did see it.
Speaker Change: The transaction and quite frankly, if your partner or your customer out there, making a buying decision in the enterprise space.
Speaker Change: Recovery, and I would say and broader Europe I will highlight however that we are still.
Speaker Change: We are still being negatively impacted by a lack of government in Germany.
Speaker Change: Got to be cautious about the potential risk.
Speaker Change: And so we are.
Speaker Change: Many people may be aware, we have a lot of business there a large percentage of our EMEA business is concentrated in the German market.
Speaker Change: We think delays probably help us somewhat.
Speaker Change: We had heard that the deal was going to close in March.
Speaker Change: And a lot of those government customers and a lot of those frame contracts are on hold.
Speaker Change: Previously we had heard the deal was going to close in December.
Speaker Change: While the government sorts itself out.
Speaker Change: And now it looks like this.
Speaker Change: When when when that happens there is we expect pent up demand.
Speaker Change: <unk> round of news throwing no doubt.
Speaker Change: Two release from that market itself, yes.
Speaker Change: On the deal.
Speaker Change: We think both HP and juniper want to proceed.
Speaker Change: Yes.
<unk> step in the right direction overall on EMEA.
Speaker Change: Is it pretty hefty breakup fee that.
Speaker Change: But there's more to come there and then as it relates to K 12 pack in the U S. I think youll see that recovery that will recover as well.
Speaker Change: We know hps doesn't want to pay.
Speaker Change: And we will see we're also not exactly sure how change at administration kind of Texas.
Speaker Change: Got it and sorry, sorry, we didn't read it.
Speaker Change: Right, Okay Super helpful. Congrats again I'll pass it.
Speaker Change: Maybe if you can a little better.
Speaker Change: Yes.
Speaker Change: Thanks, Ryan Thanks, Ryan.
Speaker Change: Got it.
Speaker Change: Thank you.
Speaker Change: And in terms of FX and the impacts from FX you guys hedge can you remind us.
Speaker Change: And our next question coming from the line of Christian Schwab with Craig Hallum Capital. Your line is now open.
Speaker Change: We do hedge Ryan.
Speaker Change: What we're trying to do is just to offset any currency fluctuations really minor adjustments from one quarter to another we don't report anything on a.
Speaker Change: Okay great.
Speaker Change: The quarter guys.
Speaker Change: Hello, My question has to do with Wi Fi seven.
Speaker Change: Can you give us an update when you think that has the opportunity to have a more meaningful positive impact on your business.
Speaker Change: Tax adjusted basis, just because we do hedging and we keep it pretty solid pretty even.
Speaker Change: Got it and just in closing up any talks about the latest gyrations in HP juniper and regulatory approval there.
Speaker Change: Well I tell you.
Speaker Change: <unk>.
Speaker Change: Let me jump in and Christian and thanks for the question and then ill let.
Speaker Change: I mean look I think.
Kevin.
Speaker Change: I'll, let you chime in.
Speaker Change: Our our view Ryan.
Speaker Change: Let's talk about more specifics and what we're saying.
Speaker Change: That combination is.
Speaker Change: That we would be a net beneficiary of those two companies coming together.
Speaker Change: Yes.
Speaker Change: <unk> seven for US is starting to ramp I think Christian you are well aware that Wi.
Speaker Change: And.
Speaker Change: Wi Fi seven brings a lot of benefits in terms of its fastest.
Speaker Change: Our expectation would be long term then that it would happen.
Speaker Change: Bandwidth and in particular, it's.
Speaker Change: Delays just creates more risk around.
Speaker Change: Enhanced liability and the fact that a lot of enterprise customers today, who may not have thought about Wi Fi for certain applications.
Speaker Change: The transaction and quite frankly, if your partner or your customer out there, making a buying decision in the enterprise space.
Speaker Change: You've got to be cautious about that.
Speaker Change: Mission critical applications.
Speaker Change: Potential risk.
Speaker Change: And now are feeling more comfortable given given the performance of Wi Fi seven so we are expecting strong adoption of Wi Fi seven.
Speaker Change: And so we are.
Speaker Change: We think delays probably help us somewhat.
Speaker Change: Yeah, we had heard that the deal was going to close in March.
Speaker Change: <unk> was one of the first to market with Wi Fi seven and we would expect.
Speaker Change: Previously we had heard the deal's going to close in December.
Speaker Change: Continued ramp also as we build out our our portfolio of Wifi seven products.
Speaker Change: And now it looks like this.
Speaker Change: <unk> round of news throwing no doubt.
Speaker Change: Kevin do you want to add any more specifics or anything else to say I think the only thing I would add Ed is that you know Gartner says it nearly half of Aep's being sold in 2027 are expected to be Wi Fi separate right.
Speaker Change: On the deal.
Speaker Change: We think both HP and juniper want to proceed.
Speaker Change: At a pretty hefty breakup fee that.
Speaker Change: We know each piece I don't want to pay.
Speaker Change: And we will see we're also not exactly sure how change at administration kind of Texas.
Speaker Change: And then we're seeing some adoption here at about 12% of our access points that we're selling right now are on Wi Fi seven category.
Speaker Change: Right, Okay Super helpful. Congrats again I'll pass it.
Speaker Change: Thanks, Greg Thanks, Ryan.
Speaker Change: Great no other questions. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Thanks Christian.
Speaker Change: And our next question coming from the line of Christian Schwab with Craig Hallum Capital. Your line is now open.
Speaker Change: Thank you.
Speaker Change: And as a reminder, if you'd like to ask a question. Please press star one on your touched on phone and laid plan aimed to be announced.
Christian Schwab: Okay, great fantastic quarter guys.
Speaker Change: Hello, My question has to do with Wi Fi seven can.
Speaker Change: Our next question coming from the line of.
Speaker Change: Can you give us an update when you think that has the opportunity to have a more meaningful positive impact on your business.
Speaker Change: Timothy Horan with Oppenheimer. Your line is now open.
Speaker Change: Hey, guys.
Speaker Change: I know youre going to elaborate.
Speaker Change: At your customer events.
Speaker Change: Well I tell you.
Speaker Change: Elaborate just a little bit more on platform one.
Speaker Change: Let me jump in and Christian and thanks for the question and then ill let.
Speaker Change: Just maybe a little more color helps differentiate us in the market how much of an improvement is it versus what you had previously.
Kevin Rhodes: Kevin I'll.
Speaker Change: I'll, let you chime in.
Kevin Rhodes: I'll talk about more specifics and what we're saying.
Speaker Change: What do you think the business model do you think this will just start to drive better share gains is maybe how do you think about the Tam or average contract size and ultimately want to do for margins.
Kevin Rhodes: <unk>.
Kevin Rhodes: Yes.
Christian Schwab: Hi Fi seven for US is starting to ramp I think Christian you are well aware that Wi.
Christian Schwab: Wi Fi seven brings a lot of benefits in terms of it faster.
Speaker Change: Question.
Christian Schwab: Bandwidth and in particular, it's about enhanced reliability and the fact that a lot of enterprise customers today, who may not have thought about Wi Fi for certain obligations.
Speaker Change: Okay.
Speaker Change: Okay Jim.
Speaker Change: It's top of mind for a lot of people we came out in December really with our vision for platform, one and theirs.
Speaker Change: Huge amount of work going on inside of extreme right now.
Christian Schwab: Mission critical applications.
Christian Schwab: And now are feeling more comfortable given given the performance of Wi Fi seven so we are expecting strong adoption of Wi Fi seven.
Speaker Change: And developing platform one, but if you think about the applications that we run supporting our business everything from wireless and Wired, we have something called site engine, which gives us the multi domain capability to manage our competitor gears, we have SD Wan we have <unk>.
Christian Schwab: Extreme was one of the first to market with Wi Fi seven and we would expect.
Christian Schwab: Continued ramp also as we build out our our portfolio of Wifi seven products.
Speaker Change: So if you package all of extreme solutions.
Christian Schwab: Kevin do you want to add any more specifics or anything else to say I think the only thing I would add Ed is that you know Gartner says that nearly half of Aep's being sold in 2027 are expected to be Wifi separate break and then we're seeing some adoption here at about 12% of our access points that we're selling right now.
Speaker Change: You can access them through <unk> through the cloud, but effectively youre going into a different application. So the.
Speaker Change: A big task that's being undertaken here is that we're we're unifying.
Speaker Change: And consolidating all the applications into a single user interface that we call workspace and so I think for the field and for our partners. The Big game changer, there can be the fact that our fabric, which is our hottest technology, because it's so differentiated and none of our competitors have it.
Christian Schwab: On the life by seven category.
Speaker Change: Great no other questions. Thanks, guys.
Tricia: Thanks Tricia.
Tricia: Thank you.
Speaker Change: And as a reminder, if you'd like to ask a question. Please press star one on your Touchtone phone en Li Fi name to be announced.
Speaker Change: The campus youre going to be able to observe from a visibility standpoint.
Speaker Change: Our next question coming from the line of.
Speaker Change: Manage and orchestrate fabric from the platform in the cloud.
Speaker Change: Timothy Horan with Oppenheimer. Your line is now open.
Speaker Change: And thats been a huge ask from our field and for our partners. So there'll be this unified solution with common user interface is common services ultimately common data.
Speaker Change: Hey, guys can you I know you're going to elaborate.
Speaker Change: At your customer event, but can you elaborate just a little bit more on platform one.
Speaker Change: Just maybe a little more color help differentiated us in the market how much of an improvement is it versus what you had previously.
Speaker Change: And.
Speaker Change: In addition, we're also building in the capability for commercial so youll be able from the same platform.
Speaker Change: And just what do you think it means for the business model do you think this will start to drive better share gains is maybe how do you think about the Tam or average contract size and ultimately what to do for margins.
Speaker Change: To manage our licensing and.
Speaker Change: Service et cetera, and so it's a comprehensive platform that is truly unique in networking and it's broader than just this network management. The other important thing dimension is that we build AI into the core of the platform.
Speaker Change: A long question.
Speaker Change: Okay.
Speaker Change: It's okay.
Speaker Change: It's top of mind for a lot of people we came out in December.
Speaker Change: With our vision for platform, one and theirs.
Speaker Change: Huge amount of work going on inside of extreme right now.
Speaker Change: Youre going to be able to query.
Speaker Change: And developing platform one, but if you think about the applications that we run supporting our business everything from wireless and wired.
Speaker Change: Youre going to be able to interface with with platform one in a way that really hasnt been been done before and it's everything from starting off with clearing.
Speaker Change: We have something called site engine, which gives us the multi domain capability to manage our competitor gears, we have SD Wan we have UC TNA. So if you package all of extreme solutions, you can access them through <unk> through the cloud, but effectively you're going into a different.
Speaker Change: If youre if youre looking for a configuration information both inside the network.
Speaker Change: If youre looking for client performance or are we meeting all of our Sla's youre going to be able to interface with the platform for some of these basic functions.
Speaker Change: Application so.
Speaker Change: And it's going to make it a lot easier to do that.
Speaker Change: The Big task, that's being undertaken here is that we're we're we're unifying.
Speaker Change: As we move along the idea is to add automation to build automation into this so as we find certain network issues that happen all the time.
Speaker Change: And consolidating all the applications into a single user interface that we call workspace and so I think for the field and for our partners. The Big game changer, Theres going be the fact that our fabric, which is our hottest technology, because it's so differentiated and none of our competitors have it for the <unk>.
Speaker Change: We can recommend.
Speaker Change: On mitigation.
Speaker Change: And over time, you can just automate that function and so.
Speaker Change: These are some of the things that we're building into the platform that we feel are fundamentally going to change.
Speaker Change: Campus youre going to be able to observe from a visibility standpoint.
Speaker Change: How people are interfacing with the network.
Speaker Change: Managing work history fabric from the last year within the cloud.
Speaker Change: So this is we talked about limited availability this quarter and then gea happening in our fiscal Q1, we.
Speaker Change: And thats been a huge ask from our field and for our partners. So there'll be this unified solution with common user interface is common services ultimately common data.
Speaker Change: We would expect over the next three years.
Speaker Change: Will migrate.
Speaker Change: And.
Speaker Change:
Speaker Change: In addition, we're also building in the capability for commercials, so youll be able from the same platform.
Speaker Change: All of our base onto this extreme platform, one and then all new customers would be signing up and joining the platform. If you take our cloud.
Speaker Change: To manage licensing and.
Speaker Change: <unk> management platform, which is very popular if you take that and then you look at what you get from extreme platform. One everyone is in in our cloud is going to want to make that move and ultimately what we will see is that.
Speaker Change: Service et cetera.
Speaker Change: And so it's a comprehensive platform that is truly unique in networking and it's broader than just since network management. The other important thing dimension is that we built AI into the core of the platform, so that youre going to be able to query.
Speaker Change: There is greater value.
Speaker Change: And with greater value, we would expect to have the combination of our service and subscription revenue.
Speaker Change: Youre going to be able to interface with with platform one in a way that really hasnt been been done before and it's everything from starting off with querying.
Speaker Change: Grow with it.
At a higher rate than where we are today, both in terms of new as well as renewal rates.
Speaker Change: If youre if youre looking for configuration information both inside the network.
Speaker Change: For subscription license at the end of the day, we want to make it incredibly simple for people to go on this journey.
Speaker Change: And Youre looking for client performance or are we meeting all of our Sla's youre going to be able to interface with the platform for some of these basic functions.
Kevin Rhodes: Fundamentally changed your networking experience, Kevin do you want to add anything.
Speaker Change: And I think you covered it all very well too.
Speaker Change: To us this is a platform that kind of elite swags, what we're seeing in the marketplace. Today like you said a lot of customers are very eager to jump on it and then the AI is going to bring us to another level that we haven't seen it's not just AI ops, but it's also.
Speaker Change: And it's going to make it a lot easier to do that.
Speaker Change: As we move along the idea is to add automation.
Speaker Change: <unk> automation into this so as we find certain network issues that happen all the time.
Speaker Change: We can recommend a mitigation.
Speaker Change: It really enables them to see better into our network.
Speaker Change: And over time, you can just automate that function and so.
Speaker Change: All the activity that's happening in the network and it combines the security as well so I think all of the above what you said.
Speaker Change: These are some of the things that they're that we're we're building into the platform that we feel are fundamentally going to change.
Speaker Change: And will customers will just cost them more initially or is it more.
Speaker Change: How people are interfacing with the network.
Speaker Change: Greece and revenue comes from then adding more and more products and services that something worthy on the product platform.
Speaker Change: So this is we talked about limited availability this quarter and then.
Speaker Change: Yes, I think the I think the value is going to come from the new capabilities of the platform and people wanting to.
Speaker Change: <unk> happening in our fiscal Q1.
Speaker Change: We would expect over the next three years, we will migrate.
Speaker Change: Yes people getting more value and wanting to trade up for the value. So.
Speaker Change: All of our base onto this extreme platform one.
Speaker Change: It's not a big step.
Speaker Change: But we would expect incremental.
Speaker Change: And then all new customers would be signing up and joining the platform. If you take our cloud cloud management platform, which is very popular if you take that and then you look at what you get from extreme platform. One everyone is in in our cloud is going to want to make that move and ultimately.
Speaker Change: Revenue from the combined offering platform one.
Speaker Change: Which would include service.
Speaker Change: Compared to the standard X IQ license and service today.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: And our next question coming from the line of.
Speaker Change: What we will see if.
Speaker Change: There is greater value.
Speaker Change: Dave Kang with B Riley Your line is now open.
Speaker Change: And with greater value, we would expect to have the combination of our service and subscription revenue.
Dave Kang: Thank you. Good morning first question is.
Speaker Change: Just wondering if you can talk about.
Speaker Change: Grow with it.
Speaker Change: At a higher rate than than where we are today, both in terms of new as well as renewal rates.
Opportunities with your service providers like Verizon and can we get an update there.
Speaker Change: For subscription license at the end of the day, we want to make it incredibly simple for people to go on this journey.
Dave Kang: Yeah, Dave as you know, we have very targeted opportunities with Verizon Ericsson.
Kevin Rhodes: And fundamentally changed your network experience, Kevin do you want to add anything.
Speaker Change: These are our largest service provider customers.
Speaker Change: What we've talked about with new commercial models is a private subscription offer and the opportunity to work with them.
Speaker Change: And I think you've covered it all very well.
Speaker Change: To us this is a platform that kind of elite swags, what we're seeing in the marketplace today and like you said a lot of customers are very eager to jump on it and then the AI, it's been a bring us to another level that we haven't seen it's not just AI ops, but it's also.
Speaker Change: More and more like an MSP.
Speaker Change: Or in that capacity.
Speaker Change: Yeah.
Speaker Change: Leverage the MSC platform that we're building.
Speaker Change: The MSP platform that we're building is was designed and something we call workspace, which is ultimately the platform that extreme platform will be built on and is being built on <unk>.
Speaker Change: It really enables them to see better into their network.
Speaker Change: All the activity that's happening in the.
Speaker Change: Network and it combines the security as well so I think all of the above what you said.
Speaker Change: So we see an opportunity to expand our relationships with these larger service providers.
Speaker Change: And what customers will just cost them more initially or is it more the.
Speaker Change: The increase in revenue comes from then adding more and more.
Speaker Change: That are in.
Speaker Change: They have relationships with networking providers that the businesses are not very profitable. We think we can unlock profitability with our new platform and the new commercial model with the private subscription offer.
Speaker Change: The services that something worthy on the platform.
Speaker Change: Yes, I think I think the value is going to come from the new capabilities of the platform and people wanting to.
Speaker Change: Yes.
Speaker Change: People are getting more value.
Speaker Change: Wanting to trade up for the value so.
Speaker Change: And we believe the economics are meaningful enough to want to go off and get some of them to move it.
Speaker Change: It's not a big step.
Speaker Change: But we would expect incremental revenue from the combined offering platform, one which would include service.
Speaker Change: It's a much longer term sales process.
Speaker Change: We are in.
Speaker Change: In the middle of that having productive conversations but.
Speaker Change: Compared to the standard X IQ license and service today.
Speaker Change: But that said I would say that's the latest we've had some large wins.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: That we mentioned that will come in two weeks, we will start to see them further into our results.
Speaker Change: Thank you.
Speaker Change: Next question coming from the line of.
Speaker Change: As we close out.
Speaker Change: Dave Kang with B Riley Your line is now open.
Speaker Change: The.
Speaker Change: Our fiscal 'twenty five.
Speaker Change: Thank you. Good morning first question is just wondering if you can talk about.
Speaker Change: Turning to fiscal 'twenty six anything else, Kevin Yeah, I know I think you hit it that that's the update okay.
Speaker Change: Opportunities with your service providers like Verizon and can we get an update there.
Speaker Change: Just wondering if you can kind of make a prediction you, though how should we think about the trajectory like maybe like maybe 10% of revenue.
Speaker Change: Yeah.
Speaker Change: Dave as you know we have very targeted opportunities with Verizon Ericsson is these are our largest service provider customers. What we've talked about with new commercial models is a private subscription offer.
Speaker Change: This fiscal year, but can we see that like towards the end of the calendar year or more like next calendar year.
Speaker Change: Any thoughts there.
Speaker Change: Yes, I wouldn't want to get into a projection at this point for 26 or beyond what that looks like.
Speaker Change: And the opportunity to work with them.
Speaker Change: More and more like an MSP.
Speaker Change: It's obviously in our pipeline.
Speaker Change: As we look at opportunities coming through we can give updated guidance on what we think revenue mixes will look like in 'twenty six.
Speaker Change: Or in that capacity.
Speaker Change: You too.
Speaker Change: To leverage the MSC platform that we're building at the MSP platform that we're building. This was designed and something we call workspace, which is ultimately the platform that extreme platform will be built on and is being built on <unk>.
Speaker Change: And once we get out a little bit closer to you.
Speaker Change: Got it and my.
Speaker Change: Second question is you mentioned the data center.
Speaker Change: How big is it are you working with any hyperscale, others or is it more of a smaller.
Speaker Change: So we see an opportunity to expand our relationships with these larger service providers.
Speaker Change: Data center operators and what's what's driving this trend.
Speaker Change: That are in.
Speaker Change: They have relationships with networking providers that the businesses are not very profitable. We think we can unlock profitability with our new platform and the new commercial model with the private subscription offer.
Speaker Change: Well it is.
Speaker Change: David we have very specific use cases for.
Speaker Change: For Ericsson and their platform that supports wireless players so think about that as almost like an OEM relationship and then in the case of Verizon.
Speaker Change: And we believe the economics are meaningful enough to want to pick off and get some of them to move.
Speaker Change: We're supporting their services platform and their back office as well as a direct customer. So those are very specific use cases.
Speaker Change: It's a much longer term sales process.
Speaker Change: We are in.
Speaker Change: In the middle of that having productive conversations but.
Speaker Change: And.
Speaker Change: That's where we're focused as you know we have not been.
Speaker Change: Uh huh.
Speaker Change: That's it I would say that's the latest we've had some large wins.
Speaker Change: We have not been active in investing in these hyperscale data Center solutions.
Speaker Change: That we mentioned that will come into and you'll start to see them further into our results as we close out.
Speaker Change: The margins in that segment have been getting squeezed and Theres a lot of larger players that are aggressively going after that as well as white box players that are going after that market. We do think with some of the announcements that have recently been made.
Speaker Change: <unk>.
Speaker Change: Our fiscal 'twenty, five and turn into fiscal 'twenty six anything else, Kevin Yeah, I know I think you hit it that that's the update okay.
Speaker Change: Just wondering if you can kind of make a prediction you, though how should we think about the trajectory like maybe like maybe 10% of revenue I mean, maybe not this fiscal year, but can we see that like towards the end of the calendar year or more like next calendar year any thoughts there.
Speaker Change: For us we view them favorably because it is encouraging with the idea that some of these AI workspace workloads and use cases.
Speaker Change: Can be built and be applied to smaller enterprise customers.
Speaker Change: In a way that's affordable.
Speaker Change: Yes, I wouldn't want to get into a projection at this point for <unk> 26 or beyond is around what that looks like it's obviously in our pipeline.
Speaker Change: And this is something obviously, it's early innings here, but we had already begun looking at how do we support our customers to the extent that some of these AI workloads come back on Prem.
Speaker Change: As we look at opportunities coming through we can give updated guidance on what we think revenue mixes will look like in 2006 and beyond what you would get a little bit closer to you.
Speaker Change: That are more suitable to our solutions.
Speaker Change: It's early innings on that Youll hear more about that later, but.
Speaker Change: Got it and my.
Speaker Change: It's a response to the broader question.
Speaker Change: Second question is you mentioned the data center.
Speaker Change: How big is it are you working with any hyperscale, others or is it more of a smaller.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
And our next question coming from the line of David <unk> with UBS. Your line is now open.
Speaker Change: Ada Center operators and what's what's driving this trend.
Well.
Speaker Change: Great. Thanks, guys for taking my questions. Maybe first one for you can you maybe speak to kind of the type of exposure or how youre thinking about kind of the way the U S is going about.
Speaker Change: David we have very specific use cases for <unk>.
Speaker Change: For Ericsson and their platform that supports wireless players so think about that as almost like an OEM relationship and then in the case of Verizon.
Speaker Change: At least on the federal government side funding the federal government and what it might mean for states and local municipalities that might be sort of.
Speaker Change: We're supporting their services platform and their back office as well as a direct customer so.
Speaker Change: Filtering into your business over the next couple of quarters, just to kind of get a sense for.
Speaker Change: How we should think about it and then maybe one for Kevin I'll give you both upfront.
Those are very specific use cases.
Speaker Change: And.
Speaker Change: Kevin when I think about your services and subscription business.
Speaker Change: That's where we're focused as you know we have not been.
Particularly on the recurring side, if I, if we adjust for the product.
Speaker Change: We've not been active in investing in these Hyperscale data Center solutions.
Speaker Change: As the chart that the professional services business has been around 100 $100 million.
Speaker Change: How do we think about that from an attach rate going forward as product revenue growth should continue to grow going forward. So you kind of a good algorithm that we should think about going forward or actually a little bit more complicated.
Speaker Change: Margins in that that segment had been getting squeezed and theres a lot of larger players that are aggressively going after that as well as white box players that are going after that market. We do think with some of the announcements that have recently been made.
Speaker Change: Okay.
Speaker Change: I'll, let Ed answer the first question.
Speaker Change: Yes, so so most of it David most of our spend on the government side.
It is for US we view them favorably because it's encouraging with the idea that some of these AI workspace workloads and use cases.
Speaker Change: Within the state and local.
Speaker Change: The state and local domain as well as in the education domain.
Speaker Change: Can be built and be applied to smaller enterprise customers in a way that is affordable.
Speaker Change: And at this stage of the game.
Speaker Change: It is early innings, but we are.
Speaker Change: And this is something obviously, it's early innings here, but we had already begun looking at how do we support our customers to the extent that some of these AI workloads come back on Prem.
Speaker Change: Not really.
Speaker Change: In.
Speaker Change: We don't we're not aware of any impact to the budgets that were supporting in terms of the networking building for schools.
Speaker Change: That are more suitable to our solutions.
Speaker Change: K through 12, and higher Ed schools, and also our state and local government customers.
Speaker Change: It's early innings on that Youll hear more about that later, but.
Speaker Change: But yes, our federal spend customers are.
Speaker Change: It's a response to the broader question.
Speaker Change: <unk> well established government entities and here again.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: We don't expect.
Speaker Change: And our next question is coming from the line of David <unk> with UBS. Your line is now open.
Speaker Change: At this stage.
Speaker Change: We're not anticipating any impact on the projects that we have under way or that are in our funnel.
David: Great. Thanks, guys for taking my questions. Maybe first one for you can you maybe speak to kind of the type of exposure or how youre thinking about sort of the way the U S is going about.
Speaker Change: Great. Thanks.
Speaker Change: And then just to answer the second part of your question with regard to subscription and support.
Speaker Change: Outlook for that Theres really four factors that are really going to help that one just increase in product sales as we've recovered right from Q3, and Q4 of last year, where we had lower product revenue coming into this year remember a subscription and support is kind of lagging indicator against those product sales.
David: At least on the federal government side funding the federal government and what it might mean for states and local municipalities that might be sort of.
David: Filtering into your business over the next couple of quarters, just to kind of get a sense for.
David: How we should think about it and then maybe one for Kevin I'll give you both upfront.
David: Kevin when I think about your services and subscription business, particularly on the recurring side if I, if we adjust for the product.
Speaker Change: You sell the product to get the attach and then you've got the growth rate coming behind that so theres a little bit of a lag right now that we're kind of feeling a little bit of a pain from Q3, and Q4 last year and the and the growth rate here, it's still 14% that's still what we're expecting to be in the kind of mid teens growth on the subscription side, but nevertheless.
David: At least that's the chart that the professional services business has been around 100 <unk> hundred million dollars business, how do we think about the estimate attach rate going forward.
David: That revenue growth should continue to grow going forward. So you have kind of a good algorithm that we should think about going forward or just a little bit more complicated than that okay. We can yes.
Speaker Change: A little bit lower than what we experienced.
Speaker Change: Platform, so higher growth growth and product is going to help us, which we're calling.
Ed: Ill, let Ed answer the first question.
Speaker Change: Yes, so so most of it David most of our spend on the government side.
Speaker Change: In the second half of the year.
Speaker Change: Part of that would be.
Speaker Change: Won and platform what attach.
Ed: Within the state and local.
Speaker Change: A little bit higher asps, but also we're going to get more and more of our customers to renew and platform one and we will get not only <unk>, but also we will add other features to that including the support to it and we will get all of that to renew at the same time.
Ed:
Ed: <unk> local domain as well as in the education domain.
Ed: And at this stage of the game.
Ed: It is early innings, but we are not really.
Ed: In.
Ed: <unk>.
Ed: We don't we're not aware of any impact to the budgets that were supporting in terms of the networking building for schools.
Speaker Change: With enterprise agreements with these customers. So that's gonna be new as well three we've got that extreme subscription private offer which we just talked about earlier with the service providers.
Ed: K through 12, and higher Ed schools, and also our state and local government customers.
Speaker Change: Service providers are really fortune 100 companies that continues to do well and we believe that we will get more and more subscription revenue associated with that and then the last one is MSP and driving.
Ed: But yes, our federal spend customers are very well established government entities and here again.
Speaker Change: Nsp's, which again, 100% attach for every deal that closed this within an MSP and so it's a combination of a better attach rate, but its more product sales and if these new go to market motions that we have that both at 100% attach rate as well on the MSP side in the us.
Ed: We don't expect.
Ed: At this stage.
Ed: We're not anticipating any impact on the projects that we have under way or that are in our funnel.
Ed: Alright. Thanks.
Ed: And then just to answer the second part of your question with regard to subscription and support.
Ed: Look for that right.
Ed: Really I call. It four factors that are really going to help that one just increase in product sales as we've recovered from Q3 and Q4 of last year, where we had lower product revenue coming into this year remember a subscription and support is kind of a lagging indicator against those product sales you sell the product to get the attach.
Speaker Change: Helpful and can I get a couple more.
Speaker Change: And I think I heard you say Q3 would be better seasonality. This year can you maybe talk about kind of what's driving that is it marketing.
Speaker Change: Just general improvement in networking backdrop, just kind of get a sense of what's going on there.
Speaker Change: Yeah, that's right so.
Speaker Change: What we have is.
Ed: And then you've got the growth rate coming behind that so theres, a little bit of a lag right now that we're kind of feeling a little bit of a pain from Q3 and Q4 last year.
Speaker Change: Normally what you would see in our seasonality patterns and trends is a dip in March and then a nice step in.
Ed: And the growth rate here, it's still 14% that's still what we're expecting to be in the kind of mid teens growth on the subscription side, but nevertheless, a little bit lower than what we experienced.
Speaker Change: In the June quarter, and what we're calling here as a flat March quarter.
Speaker Change: And then a nice step in June so normally instead of seeing you would see a downtick and.
Ed: But platforms, so higher growth growth and product is going to help us, which we're calling in the second half of the year. The second part of that would be.
Speaker Change: The strength in the market.
Speaker Change: And our outlook and the opportunities that we have in our funnel and with what we're seeing is that.
Ed: Won and platform what attach.
Ed: A little bit higher asps, but also we're going to get more and more of the customers to our new it platform, one and will get not only <unk>, but also we will add other features to that including the support to it and we will get all of that to renew at the same time with.
Speaker Change: We're confident in calling a flat quarter. So that's why it's a seasonally stronger quarter, because we were expecting.
Speaker Change: We're not expecting the dip in March that we would normally get and yes. Its the broader market recovery. It's our commercial models that are adding.
Ed: With enterprise agreements with these customers. So that's gonna be new as well three we've got that extreme subscription private offer which we just talked about earlier with the service providers.
Speaker Change: And gaining momentum.
Speaker Change: We think that the competitive position our competitive positioning continues to favor us and will continue to.
Ed: Service providers are really fortune 100 companies that continues to do well and we believe that we will get more and more subscription revenue associated with that and then the last one is MSP and driving.
Speaker Change: Create opportunities for extreme.
Speaker Change: Im.
Speaker Change: And as I mentioned some of our markets in specific like in Germany and Europe.
S piece, which again, 100% attach for every deal that closed this within an MSP and so it's a combination of a better attach rate, but its more product sales and if these new go to market motions that we have that both have 100% attach rate as well on the MSP side in the us.
Speaker Change: We continued to be negatively impacted by a lack of spend in that particular market and.
Speaker Change: We are expecting to have a new government and we're expecting to have budgets and when that happens, we think spending will be unlocked and that'll be a tailwind for us great. Thank you.
Speaker Change: Helpful. I can I can I slip one more in and I think I heard you say Q3 would be better seasonality. This year can you maybe talk about kind of what's driving that is it mark Mark it's what products.
Speaker Change: Thank you.
Speaker Change: Our next question coming from the line of.
Speaker Change: Thank you Nancy with Lake Street Capital markets. Your line is now open.
Speaker Change: Just general improvement in networking backdrop, just kind of get a sense of what's going on there.
Speaker Change: Yes, I'm trying to get a feel for industry growth rates given your own action over the last call. It 12 months or so it's been hard to get a feel for.
Speaker Change: Yeah, that's right so.
Speaker Change: What we have is.
Speaker Change: And normally what you would see in our seasonality patterns and trends is a dip in March and then a nice step in.
Speaker Change: The overall industry growth rate, but is this a an industry that you see kind of a high single digits growth rate mid single digits, because you've got the puts and takes with the competitive landscape your own product launches and then the.
Speaker Change: In the June quarter, and then what we're calling here as a flat March quarter.
Speaker Change: And then a nice step in June so normally instead of seeing you would see a downtick and.
Speaker Change: The channel issues from a year ago.
Speaker Change: Yes, Eric I think.
Speaker Change: Our view of the industry is that it's a mid single digit grower and that we're in a share gain position and when you think about extreme long term you think about extreme in that.
Speaker Change: The strength in the market.
Speaker Change: And our outlook and the opportunities that we have in our funnel and with what we're seeing is that we.
Speaker Change: We're confident in calling a flat quarter. So that's why it's a seasonally stronger quarter, because we were expecting.
Speaker Change: In the high single digits trending to.
Speaker Change: Double digit territory.
Speaker Change: We're not expecting the dip in March that we would normally get and yes. Its the broader market recovery. It's our commercial models that are adding.
Kevin Rhodes: Okay Kevin.
Dave Kang: Kevin I'll open the door for you here, yes, no I think youre right I mean, that's exactly what we would say and they.
Speaker Change: And gaining momentum.
Kevin Rhodes: The larger companies like Cisco like Eaton.
Speaker Change: We think that the competitive positioning of our competitive positioning continues to favor us and will continue to.
Dave Kang: And their networking business have loaded.
Kevin Rhodes: Single digits.
Kevin Rhodes: But I think that's what we're positioning ourselves for from a long range.
Speaker Change: Create opportunities for extreme.
Kevin Rhodes: Expectation.
Speaker Change: And as I mentioned in some of our markets and specific like in Germany and Europe.
Kevin Rhodes: Okay, and then I just wanted to go a layer deeper on the <unk>.
Kevin Rhodes: <unk> stepped down in the gross margin outlook for Q3 versus Q4 finished at 63, 4% on the non-GAAP gross margin for Q2 and the midpoint for Q3 exit for the back half is 62, 5%. So.
Speaker Change: We continue to be negatively impacted by a lack of spend in that particular market and.
Speaker Change: We are expecting to have a new government and we're expecting to have budgets and when that happens, we think spending will be unlocked and that'll be it.
Speaker Change: I understand that based on mix, but in particular, what what product.
Speaker Change: <unk> for us.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Kevin Rhodes: Is pulling that mix down.
Speaker Change: And our next question coming from the line of.
Kevin Rhodes: Yes, it's just a function of the actual product gross margin is lower than subscription and support gross margin right and so the growth that we see coming back here in the second half of the year is primarily going to be on the product side and so that's the mix shifts that we're owing to the slightly lower.
Eric: Eric <unk> with Lake Street Capital markets. Your line is now open.
Speaker Change: Yeah.
Speaker Change: Yes, I'm trying to get a feel for industry growth rates, you know given your own action over the last call. It 12 months or so it's been hard to get a feel for.
Speaker Change: Just.
Speaker Change: The overall industry growth rate, but is this a trend that you see.
Kevin Rhodes: <unk>.
Kevin Rhodes: At the end of the day, there is a little bit of we also have taxes being reset here and.
Speaker Change: High single digits growth rate mid single digits, because you've got the puts and takes with the competitive landscape your own product launches and then the.
Kevin Rhodes: In January and so we've got some cogs expenses as well as operating expenses that will be affected by the FICA.
Speaker Change: The channel issues from a year ago, yes.
Kevin Rhodes: So thats being reset and so that's a little bit of a drag on gross margins as well and we still feel comfortable I would say Eric in terms of the 64 to 66 kind of long term range for gross margin, obviously, we'll try to overachieve that.
Speaker Change: Yes, Eric I think.
Speaker Change: Our view of the industry is that it's a mid single digit grower and that we're in a share gain position and when you think about extreme long term you think about extreme in that.
Kevin Rhodes: As we as we continue to derive here for the second half of the year with a 62% to 63% range, but I would say.
Speaker Change: And in the high single digits trending to.
Speaker Change: Double digit territory.
Kevin Nowlan: Okay, Kevin Nowlan.
Kevin Rhodes: Certainly that's what it is.
Kevin Rhodes: Really just product in general being a higher mix of revenue.
Speaker Change: Kevin I'll open the door for you here, yes, no I think Youre right Ed I mean, that's exactly what we would say.
Kevin Rhodes: The third and fourth quarter.
Kevin Nowlan: The larger companies like Cisco like even.
Kevin Rhodes: Got it thanks for the clarification.
Speaker Change: And their networking business have loaded.
Kevin Nowlan: Single digits.
Kevin Nowlan: But I think that's what we're positioning ourselves for the long range.
Kevin Rhodes: Thank you.
Speaker Change: And I assume there are no further questions in the queue. At this time I will now turn the call back over to Mr.
Kevin Nowlan: Expectation.
Kevin Nowlan: Okay, and then I just wanted to go a layer deeper on the slight step down in the gross margin outlook for Q3 versus Q4 finished at 63, 4% on the non-GAAP gross margin for Q2 and the midpoint for Q3 exit for the back half is 62, 5%. So.
Clark: Clark for any closing remarks.
Clark: Okay. Thank you very much.
Speaker Change: Thanks, everybody for joining the call today.
Speaker Change: We appreciate your support and we have a lot of exciting things going on at extreme.
Speaker Change: Certainly as we.
Speaker Change: As we go through this quarter and.
Kevin Nowlan: I understand that.
Kevin Nowlan: It's a mix, but in particular, what what product.
Speaker Change: Had to May for our user conference with connect.
Speaker Change: I want to thank our employees customers partners, who are dialed in.
Kevin Nowlan: Is pulling that mix down.
Kevin Nowlan: Margin Yeah, it's just a function of the actual product gross margin is lower than subscription and support gross margin right and so the growth that we see coming back here in the second half of the year is primarily going to be on the product side and so that's the mix shifts that where are we.
Speaker Change: We're excited about the opportunities.
Speaker Change: That lie ahead.
Speaker Change: We are also open the door to investors to come to Paris, where we're showcasing our new technology.
Speaker Change: We look forward to we look forward to seeing you there.
Kevin Nowlan: Going to the slightly lower margin.
Speaker Change: Thanks, everybody and have a great day.
Kevin Nowlan: The end of the day, there is a little bit of we also have taxes being reset here in January and so we've got some cogs expenses as well as operating expenses that will be affected by the FICA.
Speaker Change: Thank you.
Speaker Change: This concludes today's conference. Thank you for your participation and you may now disconnect.
Kevin Nowlan: Limits being reset and so that's a little bit of a drag on gross margins as well.
Kevin Nowlan: Still feel comfortable I would say Eric in terms of the 64 to 66 kind of longer term range for gross margin, obviously, we're trying to overachieve that.
Kevin Nowlan: As we as we continue to derive here for the second half of the year with a 62% to 63% range, but I would say.
Kevin Nowlan: Certainly that's what it is it's primarily just product in general being a higher mix of revenue.
Kevin Nowlan: The third and fourth quarter.
Kevin Nowlan: Got it thanks for the clarification.
Kevin Nowlan: Thank you.
Speaker Change: And there are no further questions in the queue. At this time I will now turn the call back over to Mr. Clark for any closing remarks.
Clark: Okay. Thank you very much.
Mr. Clark: Thanks, everybody for joining the call today.
Mr. Clark: We appreciate your support and we have a lot of exciting things going on at extreme.
Mr. Clark: Certainly as we.
Mr. Clark: As we go through this quarter and.
Mr. Clark: Had to May for our user conference with connect.
Mr. Clark: I want to thank our employees customers partners, who are dialed in.
Mr. Clark: We're excited about the opportunities.
Mr. Clark: That lie ahead I know we are also open the door to investors to come to Paris, where we're showcasing our new technology.
Mr. Clark: We look forward to we look forward to seeing you there.
Mr. Clark: Everybody have a great day.
Thank you.
Mr. Clark: This concludes today's conference. Thank you for your participation and you may now disconnect.
Mr. Clark: [music].