Q1 2027 Extreme Networks Inc Earnings Call

October 28, 2026

Operator: Thank you for joining us, and welcome to Extreme Networks' first quarter 2027 fiscal year financial results conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Stan Kovler, senior vice president, finance and corporate development. Please go ahead.

Operator: Thank you for joining us, and welcome to Extreme Networks' first quarter 2027 fiscal year financial results conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Stan Kovler, Senior Vice President, Finance and Corporate Development. Please go ahead.

Speaker #1: If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Stan Kovler, Senior Vice President, Finance and Corporate Development.

Speaker #1: Please go ahead.

Stan Kovler: Thank you, Jade. Good morning and welcome to Extreme Networks' first quarter fiscal year 2027 earnings conference call. I am Stan Kovler, vice president of finance and corporate development. With me today are Extreme Networks' president and CEO, Ed Meyercord, 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 first quarter. A copy of the press release, which includes our GAAP and non-GAAP reconciliations and our earnings presentation, is available in the IR section at extremenetworks.com. Today's call and Q&A may include certain forward-looking statements based on current expectations about Extreme's future financial and operational results, growth expectations, new product introductions, supply chain dynamics, and management strategies. All financial disclosures made on this call will be on a non-GAAP basis unless stated otherwise.

Stan Kovler: Thank you, Jade. Good morning and welcome to Extreme Networks' first quarter fiscal year 2027 earnings conference call. I am Stan Kovler, Vice president of finance and corporate development. With me today are Extreme Networks' president and CEO, Ed Meyercord, 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 first quarter. A copy of the press release, which includes our GAAP and non-GAAP reconciliations and our earnings presentation, is available in the IR section at extremenetworks.com. Today's call and Q&A may include certain forward-looking statements based on current expectations about Extreme's future financial and operational results, growth expectations, new product introductions, supply chain dynamics, and management strategies. All financial disclosures made on this call will be on a non-GAAP basis unless stated otherwise.

Speaker #2: Thank you, Jade. Good morning, and welcome to Extreme Networks' first quarter fiscal year 2027 earnings conference call. I'm Stan Kovler, Vice President of Finance and Corporate Development.

Speaker #2: With me today are EXTREME NETWORKS President and CEO, Ed Meyercord, an Executive Vice President and CFO, Kevin Rhodes, we just distributed a press release and filed an 8K detailing EXTREME NETWORKS' financial results for the first quarter, a copy of the press release which includes our gap to non-gap reconciliations, and our earnings presentation is available in the IR section at EXTREMENETWORKS.com.

Speaker #2: Today's call and Q&A may include certain forward-looking statements based on current expectations about EXTREME's future financial and operational results, growth expectations, new product introductions, supply chain dynamics, and management strategies.

Speaker #2: 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.

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 our 10-K and 10-Q filings. Any forward-looking statements made on this call reflect our analysis as of today, and we have no plans to update them except as required by law. Following our prepared remarks, we will take questions. Now I will turn the call over to Extreme's president and CEO, Ed Meyercord.

Speaker #2: These risks are described in our risk factors and in our 10-K and 10-Q filings. Any forward-looking statements made on this call reflect our analysis as of today, and we have no plans to update them except as required by law.

Speaker #2: Following our prepared remarks, we will take questions, and now I will turn the call over to EXTREME's President and CEO, Ed Meyercord.

Ed Meyercord: Thank you, Stan, and thank you all for joining us this morning. Revenue grew 10% year-over-year, marking Extreme's seventh consecutive quarter of double-digit revenue and product revenue growth. Non-GAAP EPS increased 50% year-over-year as we continue to translate strong top-line performance into even faster earnings growth. SaaS ARR accelerated to 22% year-over-year growth and reached approximately $265 million. Based on the combination of our performance, visibility into customer demand, strong funnel growth, continued share gains, and accelerating adoption of Extreme Platform ONE, we are raising our expectations to 10% growth for both the Q2 and full year of fiscal 2027. We expect our SaaS ARR growth to exceed 20% for the rest of the year as well. We continue to outgrow the market, expand within larger enterprises, win competitive opportunities, and strengthen our position as customers increasingly standardize on our AI-powered integrated networking platform.

Speaker #3: Thank you, Stan, and thank you all for joining us this morning. Revenue grew 10% year over year, marking Extreme’s seventh consecutive quarter of double-digit revenue and product revenue growth.

Speaker #3: Non-GAAP EPS increased 50% year over year, as we continue to translate strong top-line performance into even faster earnings growth. SaaS ARR accelerated to 22% year-over-year growth and reached approximately $265 million.

Speaker #3: Based on the combination of our performance, visibility into customer demand, strong funnel growth, continued share gains, and accelerating adoption of EXTREME Platform One, we're raising our expectations to 10% growth for both the second quarter and full year of fiscal 2027.

Speaker #3: We expect our SaaS ARR growth to exceed 20% for the rest of the year as well. We continue to outgrow the market, expand within larger enterprises, win competitive opportunities, and strengthen our position as customers increasingly standardize on our AI-powered integrated networking platform.

Ed Meyercord: Customer demand remains strong. Our open funnel grew at a double-digit rate with strength in all regions. Our regional pod strategy, with a strong focus on specific verticals, is helping us win more of the opportunities we pursue. Our disciplined execution and supply chain strategy give us ample product availability to convert that demand into revenue. There are three key pillars driving our growth. First, we are moving upmarket. We booked 44 customers at over $1 million this quarter, up from 36 a year ago, largely due to our technology differentiation. Our Campus Fabric takes complexity out of the network with zero-touch provisioning, sub-second recovery, and built-in segmentation that helps prevent lateral attacks. Our Wi-Fi is built to perform in complex, high-density environments, keeping users connected and applications running reliably.

Speaker #3: Customer demand remains strong. Our open funnel grew at double-digit rate with strength in all regions, our regional pod strategy with a strong focus on specific verticals, is helping us win more of the opportunities we pursue.

Speaker #3: Our disciplined execution and supply chain strategy give us ample product availability to convert that demand into revenue. There are three key pillars driving our growth.

Speaker #3: First, we're moving up market. We booked 44 customers at over a million dollars this quarter up from 36 a year ago, largely due to our technology differentiation.

Speaker #3: Our campus fabric takes complexity out of the network with zero-touch provisioning, sub-second recovery, and built-in segmentation that helps prevent lateral attacks. Our Wi-Fi is built to perform in complex, high-density environments keeping users connected and applications running reliably.

Ed Meyercord: That differentiation, along with our simplicity and lower total cost of ownership, is helping open new doors and win bigger deals. Second, Platform ONE adoption is accelerating as a result of continued innovation and now accounts for over half of our subscription bookings. Customers want a single AI-powered platform that integrates security and networking to help reduce complexity, simplify operations, and manage their wired and wireless environments in one place. Third, market conditions are working in our favor. Competitor refresh cycles, Wi-Fi upgrades, and the disruption from the HPE and Juniper integration are creating a multi-year opportunity. Supply is also a differentiator. Our components are secured through calendar 2027, while our competitors are quoting extended lead times. These advantages matter most when customers are making large, high-stakes decisions, and our recent wins show it.

Speaker #3: That differentiation, along with our simplicity and lower total cost of ownership, is helping open new doors and win bigger deals. Second, Platform One adoption is accelerating as a result of continued innovation and now accounts for over half of our subscription bookings.

Speaker #3: Customers want a single AI-powered platform that integrates security and networking to help reduce complexity, simplify operations, and manage their wired and wireless environments in one place.

Speaker #3: Third, market conditions are working in our favor. Competitor refresh cycles, Wi-Fi upgrades, and the disruption from the AP the HPE and Juniper integration are creating a multi-year opportunity.

Speaker #3: Supplies also differentiate our components are secured through calendar 27 while our competitors are quoting extended lead times. These advantages matter most when customers are making large, high-stakes decisions and our recent wins show it.

Ed Meyercord: One of the largest integrated healthcare networks in the United States chose Extreme for a campus transformation spanning 21 hospitals and roughly 600 care locations. Where network availability directly affects patient care, Campus Fabric delivered the automation, resiliency, and segmentation the customer needed. Within the first month, support tickets dropped over 90%. When customers evaluate Fabric through a proof of concept, the differences become clear and our win rate is excellent. Wi-Fi refreshes is another important driver of our success. Hard Rock Stadium in Miami selected Extreme to replace its aging Wi-Fi 5 environment with Wi-Fi 7, supported by a full switching upgrade. In addition to Dolphins games, the network will support events like the Formula 1 Miami Grand Prix and the Miami Open, providing the capacity and lower latency required to support tens of thousands of fans simultaneously streaming, sharing content, making mobile transactions, and using digital services.

Speaker #3: One of the largest integrated healthcare networks in the United States chose Extreme for a campus transformation spanning 21 hospitals and roughly 600 care locations.

Speaker #3: Where network availability directly affects patient care campus fabric delivered the automation, resiliency, and segmentation the customer needed. Within the first months, support tickets dropped over 90%.

Speaker #3: When customers evaluate fabric through a proof of concept, the differences become clear and our win rate is excellent. Wi-Fi refreshes is another important driver of our success.

Speaker #3: Hard rock stadium in Miami selected EXTREME to replace its aging Wi-Fi 5 environment with Wi-Fi 7 supported by a full switching upgrade. In addition to dolphins games, the network will support events like the Formula One Miami Grand Prix and the Miami Open providing the capacity and lower latency required to support tens of thousands of fans simultaneously streaming, sharing content, making mobile transactions, and using digital services.

Ed Meyercord: This deployment demonstrates how these Wi-Fi refresh wins create an opportunity to then sell our entire infrastructure portfolio. Platform ONE is a key growth engine that strengthens our recurring revenue. Customers value the simplicity of managing their wired and wireless on a single AI-powered platform. We have a number of Platform ONE customers across verticals, including Cambridgeshire and Peterborough NHS Foundation Trust in the UK, where Platform ONE will manage the Extreme wired and wireless network, delivering enterprise security and operational resilience across the healthcare organization's clinical sites. regio iT, the largest municipal IT service provider in North Rhine-Westphalia, Germany, will leverage Platform ONE to manage its Extreme Wi-Fi 7 networks across hundreds of sites, helping municipalities, schools, and utilities deliver digital services with less IT overhead.

Speaker #3: This deployment demonstrates how these Wi-Fi refresh wins create an opportunity to then sell our entire infrastructure portfolio. Platform One is a key growth engine that strengthens our recurring revenue.

Speaker #3: Customers value the simplicity of managing their wired and wireless on a single AI-powered platform. We have a number of Platform One customers across verticals, including Cambridge Shire and Peterborough NHS Trust Foundation in the UK, where Platform One will manage the EXTREME wired and wireless network, delivering enterprise security and operational resilience across the healthcare organization's clinical sites.

Speaker #3: Regio IT, the largest municipal IT service provider in North Rhine-Westphalia Germany, will leverage platform one to manage its EXTREME Wi-Fi 7 networks across hundreds of sites helping municipalities schools and utilities deliver digital services with less IT overhead.

Ed Meyercord: One of Austria's largest banks chose Extreme over a long-time competitor to refresh its wired and wireless networks across more than 70 branches, all managed through Platform ONE. With its cloud-first strategy, Platform ONE will give the bank's network team centralized cloud-based management at scale. Last week, we held our second annual AI summit in Amsterdam, bringing together senior IT leaders to discuss industry trends and share our longer-term vision. We showcased early Agent ONE momentum and previewed the industry's first on-prem enterprise AI infrastructure for networking. Extreme's AI understands each customer's network topology, history, and operating context, turning that insight into practical recommendations and measurable productivity. Agent ONE Coworker, our next-generation AI agent, reached all Platform ONE customers in early September and drove a 10x adoption rate over the first generation. Its signature feature is Nudge.

Speaker #3: One of Austria's largest banks chose EXTREME over a long time competitor to refresh its wired and wireless networks across more than 70 branches all managed through platform one.

Speaker #3: With its cloud-first strategy, platform one will give the bank's network team centralized cloud-based management at scale. Last week, we held our second annual AI summit in Amsterdam bringing together senior IT leaders to discuss industry trends and share our longer-term vision.

Speaker #3: We showcased early Agent One momentum and previewed the industry's first on-prem enterprise AI infrastructure for networking. Extreme's AI understands each customer's network topology, history, and operating context, turning that insight into practical recommendations and measurable productivity.

Speaker #3: Agent One, our next-generation AI agent, reached all platform one customers in early September and drove a 10x adoption rate over the first generation.

Speaker #3: Its signature feature is Nudge unlike conversational AI which waits for someone to ask the right question the Nudge feature proactively surfaces timely, contextual recommendations inside the inside the workflow and 98% of critical nudges got a response.

Ed Meyercord: Unlike conversational AI, which waits for someone to ask the right question, the Nudge feature proactively surfaces timely, contextual recommendations inside the workflow, and 98% of critical nudges got a response. 58% of cases opened through Agent ONE Coworker arrive with everything our engineers need to begin troubleshooting, so work starts sooner. At Hill College in Texas, the CIO said his team solved a wireless outage in minutes with Agent ONE, a task that would have taken a full morning. It also helped the team respond to a device on the guest network running crypto mining software by tracing the device through the access points, narrow its location, and resolve a security issue that could easily have gone unnoticed, all within minutes. In calendar 2027, we will make Agent ONE Operator Mode available to customers.

Speaker #3: Fifty-eight percent of cases opened through Agent One had a coworker arrive with everything our engineers needed to begin troubleshooting, so work started sooner. At Hill College in Texas, the CIO said his team solved a wireless outage in minutes with Agent One—a task that would have taken a full morning.

Speaker #3: It also helped the team respond to a device on the guest network running crypto-mining software by tracing the device through the access points, narrowing its location, and resolving a security issue that could easily have gone unnoticed—all within minutes.

Speaker #3: In calendar 2027, we will make Agent One operator mode available to customers. It will execute tasks independently within defined governance boundaries, respond to events in real time, and run scheduled workflows—learning from each outcome to become more effective over time, creating autonomous AI.

Ed Meyercord: It will execute tasks independently within defined governance boundaries, respond to events in real time, and run scheduled workflows, learning from each outcome to become more effective over time, creating autonomous AI. We also previewed Extreme Exchange zones, expected in the H1 of calendar 2027. Exchange zones bring enterprise AI on-premise, letting customers run the same applications locally or in the cloud with full control over data residency. This will allow customers to comply with data sovereignty requirements, which have become increasingly important in international markets. Exchange zones will also pool spare compute across their Extreme access points and switches. None of our direct competitors offer this. Our MSP program is also gaining traction, closing the quarter with 85 active MSPs, up from 74 last quarter. Consumption billings grew 21% quarter-over-quarter and 131% year-over-year. Platform ONE is already contributing to that growth.

Speaker #3: We also previewed EXTREME EXTREME exchange zones expected in the first half of calendar 27. EXTREME zones bring enterprise AI on premise letting customers run the same applications locally or in the cloud with full control over data residency.

Speaker #3: This will allow customers to comply with data sovereignty requirements which are becoming increasingly important in international markets. EXTREME zones will also pool spare compute across their EXTREME access points and switches none of our direct competitors offer this.

Speaker #3: Our MSP program is also gaining traction closing the quarter with 85 active MSPs up from 74 last quarter. Consumption billings grew 21% quarter over quarter and 131% year over year.

Speaker #3: Platform one is already contributing to that growth. Our funnel remains strong. We are expanding with larger customers. Industry disruption continues to create share gain opportunities.

Ed Meyercord: Our funnel remains strong. We are expanding with larger customers. Industry disruption continues to create share gain opportunities. We have the supply availability to meet customer demand, and the differentiation of Platform ONE and Agent ONE are strengthening our recurring revenue growth and strategic relevance with customers. Now let me turn the call over to Kevin to discuss our financial results and guidance.

Speaker #3: We have the supply availability to meet customer demand, and the differentiation of Platform One and Agent One are strengthening our recurring revenue growth and strategic relevance with customers.

Speaker #3: Now let me turn the call over to Kevin to discuss our financial results and guidance.

Kevin Rhodes: Thanks, Ed. I am pleased to report strong Q1 financial results. Starting with revenue, total revenue of $341 million exceeded consensus and the high end of our guidance range, representing 10% year-over-year growth. Product revenue of $218 million grew 12% year over year, indicating strength of customer demand above our typical seasonality. We are continuing to see growth in both wireless revenue, especially with Wi-Fi 7 based products, and in wired switching as well. This marks our seventh consecutive quarter of double-digit year-over-year growth and product revenue, demonstrating strong demand and our continued strong go-to-market execution. The industry pricing environment continues to be fluid, and we expect this dynamic to continue based on a combination of product cycles, mix, and demand as we pass through component cost increases. Recurring revenue of $119 million grew 7% year over year, aided by SaaS ARR growth of 22%.

Speaker #2: Thanks, Ed. I'm pleased to report strong first-quarter financial results. Starting with revenue, total revenue of $341 million exceeded consensus and the high end of our guidance range.

Speaker #2: Representing 10% year-over-year growth. Product revenue of $218 million grew 12% year-over-year, indicating strength of customer demand above our typical seasonality.

Speaker #2: We are continuing to see growth in both wireless revenue, especially with Wi-Fi 7-based products, and in wired switching as well. This marked our seventh consecutive quarter of double-digit year-over-year growth in product revenue, demonstrating strong demand and our continued strong go-to-market execution.

Speaker #2: The industry pricing environment continues to be fluid, and we expect this dynamic to continue based on a combination of product cycles, mix, and demand as we pass through component cost increases.

Speaker #2: Recurring revenue of $119 million grew 7% year over year, aided by SaaS ARR growth of 22%. As we previously stated, fiscal year '27 is the transition year where legacy support contracts are subsumed into Platform One contracts the fastest.

Kevin Rhodes: As we have previously stated, fiscal year 2027 is the transition year where legacy support contracts are subsumed into Platform ONE contracts, the FAPAS. We expect a sharp re-acceleration in recurring revenue growth in fiscal 2028 coming off our balance sheet as SaaS deferred revenue ramps this year. Through the transition, we expect continued improvement in free cash flow and margins. Turning to the Q1 margins, gross margin of 62.6% was up 130 basis points year over year and above the midpoint of our guidance. We are pleased that we were able to preserve our price advantage over our competitors while passing on component cost increases. We have also solved for memory needs by executing on our supply chain strategy, providing us with ample supply to meet demand and good visibility into gross margins.

Speaker #2: We expect a sharp re-acceleration in recurring revenue growth in fiscal 28 coming off our balance sheet as SaaS deferred revenue ramps this year. Through the transition we expect continued improvement in free cash flow and margins.

Speaker #2: Turning to the first quarter margins, gross margin of 62.6% was up 130 basis points year over year, and above the midpoint of our guidance.

Speaker #2: We're pleased that we were able to preserve our price advantage over our competitors. While passing on component cost increases. Result we've also solved from memory needs by executing on our supply chain strategy providing us with ample supply to meet demand and good visibility into gross margins.

Kevin Rhodes: Earnings per share of $0.33 accelerated to 50% year-over-year growth and above the high end of our guidance range. Geographically, we had strong revenue growth in the Americas and EMEA. In Asia Pacific, while revenue fell due to elevated prior year comparisons, we continue to win large deals in the region, and our funnel remains strong there. We continue to expect growth across all regions in fiscal 2027. Operating margin expanded to 17.4% in the quarter, up 410 basis points from the prior year quarter, and 170 basis points sequentially and well above the high end of our guidance range. We also generated $66 million of adjusted EBITDA, up 47% year over year, and our adjusted EBITDA margin of 19.2% was up 480 basis points year over year as well. If you look back two years ago, we have nearly doubled our profitability as a company.

Speaker #2: Earnings per share of $0.33 accelerated to 50% year-over-year growth and came in above the high end of our guidance range. Geographically, we had strong revenue growth in the Americas and EMEA.

Speaker #2: In Asia PAC while revenue fell due to elevated prior year comparisons we continue to win large deals in the region and our funnel remains strong there.

Speaker #2: We continue to expect growth across all regions in fiscal 27. Operating margin expanded to 17.4% in the quarter. Up 410 basis points from the prior year quarter.

Speaker #2: And 170 basis points sequentially. And well above the high end of our guidance range. We also generated 66 million dollars of adjusted EBITDA up 47% year over year and our adjusted EBITDA margin of 19.2% was up 480 basis points year over year as well.

Speaker #2: If you look back two years ago we have nearly doubled our profitability as a company. We continue to achieve operating leverage through healthy growth as well as prudent cost management.

Kevin Rhodes: We continue to achieve operating leverage through healthy growth as well as prudent cost management, thus outperforming in the Q1. In the Q2, while we plan for seasonally higher expenses due to sales and marketing expense, such as our annual sales kickoff, AI summit, and advisory council events, just to name a few, we continue to expect our profitability to maintain its current course. Over the long term, we continue to drive operating leverage as we scale. In terms of cash flow, we generated $39 million of free cash flow and ended the quarter with $245 million of cash, our highest cash balance since fiscal 2021, and a healthy $45 million of net cash. This was during a quarter in which we repurchased $25 million worth of shares and made strategic memory purchases, on which we now have $36 million of memory on our balance sheet.

Speaker #2: Thus, outperforming in the first quarter. And in the second quarter, while we plan for seasonally higher expenses due to sales and marketing expenses—such as our annual sales kickoff, AI summit, and advisory council events, just to name a few.

Speaker #2: We continue to expect our profitability to maintain its current course over the long term. We continue to drive operating leverage as we scale. In terms of cash flow, we generated $39 million of free cash flow and ended the quarter with $245 million of cash.

Speaker #2: Our highest cash balance since fiscal 21. In a healthy 45 million dollars of net cash. This was during a quarter in which we've repurchased 25 million dollars worth of shares and made strategic memory purchases of which we now have 36 million dollars of memory on our balance sheet.

Kevin Rhodes: We are effectively generating cash and using it strategically while returning cash to shareholders and maintaining a healthy balance sheet. On a vertical basis, we experienced broad-based strength with particular standout bookings growth in education, manufacturing, healthcare, and sports and entertainment. We mentioned a few of these wins and these customers earlier. Looking at the Q2 and the rest of the year, we are increasingly confident in our ability to achieve double-digit revenue growth. In the Q2 of fiscal 2027, we expect revenue to be in a range of $345.8 million to $350.8 million, gross margin to be in a range of 62.2% to 62.7%, operating margin to be in a range of 16.4% to 17.4%, and earnings per share to be in a range of $0.32 to $0.34 per share. For the fiscal year 2027, we are increasing our guidance as follows.

Speaker #2: We are effectively generating cash and using it strategically. While returning cash to shareholders and maintaining a healthy balance sheet. On a vertical basis we experienced broad based strength with particular standout bookings growth and education manufacturing healthcare and sports and entertainment.

Speaker #2: We measured a few of these wins in these customers earlier. Looking at the second quarter and the rest of the year, we're increasingly confident in our ability to achieve double-digit revenue growth.

Speaker #2: In the second quarter of fiscal '27, we expect revenue to be in a range of $345.8 million to $350.8 million. Gross margin is expected to be in a range of 62.2% to 62.7%.

Speaker #2: Operating margin to be in a range of 16.4% to 17.4%, and earnings per share to be in a range of $0.32 to $0.34 per share.

Speaker #2: For the fiscal year 27 we are increasing our guidance as follows. We expect revenue to be in a range of 1 billion 402 million to 1 billion 412 million dollars.

Kevin Rhodes: We expect revenue to be in a range of $1,402 million to $1,412 million, up 10% year over year at the midpoint. Gross margin we are expecting to be in a range of 62.3% to 62.8%, operating margin to be in a range of 17.2% to 17.6%, and earnings per share to be in a range of $1.35 to $1.39 per share. We expect our fiscal 2027 non-GAAP tax rate to be 21.8% for the year. With that, let's now turn the call over to the operator to begin the question and answer session.

Speaker #2: Up 10% year over year. At the midpoint. Gross margin we're expecting to be in a range of 62.3% to 62.8%. Operating margin to be in a range of 17.2 to 17.6%.

Speaker #2: And earnings per share to be in a range of $1.35 to $1.39 per share. We expect our fiscal '27 non-GAAP tax rate to be 21.8% for the year.

Speaker #2: And with that let's now turn the call over to the operator to begin the question and answer session.

Operator: Thank you. We will now begin the question and answer session. Please limit yourself to one question. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality, and if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ryan Koontz from Needham & Co. Please go ahead.

Speaker #1: Thank you. We will now begin the question and answer session. Please limit yourself to one question. If you would like to ask a question, please press star one to raise your hand.

Speaker #1: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device.

Speaker #1: Please stand by while we compile the Q and A roster. Your first question comes from the line of Ryan Koontz from Nedim & Co.

Speaker #1: Please go ahead.

Ryan Koontz: Great. Good morning, and nice results and guide, guys. Nice to hear the business is humming here. With regards to gross margin and supply and memory specifically, any particular things you would point out with regards to availability in terms of your strategy, how that is playing out, and how we should expect gross margins to fare going forward? It is nice you guys have supply, but I think investors have been worried about costs here. So maybe you can shed some more light on that. Nice job, though.

Speaker #3: Great. Good morning, and nice results and guidance, guys. Nice to hear the business is humming here. With regards to gross margin and supply and memory specifically, are there any particular things you'd point out with regards to availability? In terms of your strategy, how that's playing out, and how should we expect gross margins to differ going forward?

Speaker #3: It's nice you guys have supply, but I think we've all been investors and we've been worried about costs here. So maybe you can shed some more light on that.

Speaker #3: Nice job though.

Kevin Rhodes: Yeah. Thanks, Ryan. Our teams got on this early, and what we have tried to do is flip what is a negative in terms of constrained supply into a positive because we have plenty of memory. You will see the cost pressure in our gross margin number because you will see the higher cost of memory embedded in what we just announced. But the bottom line is that we have got full supply out well into fiscal 2028. For us, what we see is an opportunity to provide shorter lead times than what is out there for the industry. So we continue to remain in a strong position on that, and the higher cost of memory is built into the gross margin that we just reported and our guide.

Speaker #4: Yeah. Thanks Ryan and yeah our teams got on this early and what we've tried to do is flip you know what is a negative in terms of constrained supply into a positive because we have plenty of memory.

Speaker #4: You know, you will see the cost pressure in our gross margin number because you'll see the higher cost of memory embedded in what we just announced.

Speaker #4: But the bottom line is that we are we've got you know full supply you know out you know well into fiscal 28 and you know for us what we see is an opportunity to provide shorter lead times than what's out there for the industry.

Speaker #4: So, you know, we continue to remain in a strong position on that, and the higher cost of memory is built into the gross margin that we just reported and our guide.

Ryan Koontz: Got it. The pricing environment allows you to essentially raise price to offset that?

Speaker #3: Got it. And the pricing environment allows you to essentially raise prices to offset that.

Speaker #4: That that's right. We've been a little more conservative than our larger competitors in raising price. We hear this from distributors partners and customers that the bigger players have been raising price more aggressively so I would say we still have room there but we've been able to deliver the margins you know with what we've done so far.

Kevin Rhodes: That is right. We have been a little more conservative than our larger competitors in raising price. We hear this from distributors, partners, and customers that the bigger players have been raising price more aggressively. So I would say we still have room there, but we have been able to deliver the margins with what we have done so far.

Ryan Koontz: That is really great. Thank you. I will get back in the queue. Appreciate it.

Speaker #3: That's really great. Thank you. I'll get back in the queue. Appreciate it.

Kevin Rhodes: Thanks, Ryan.

Speaker #4: Thanks Ryan.

Operator: Your next question comes from the line of Mike Genovese from Rosenblatt Securities. Please go ahead.

Speaker #1: Your next question comes from the line of Mike Genovese from Rosenblatt Securities. Please go ahead.

Mike Genovese: Great. Thanks. Platform ONE bookings are over 50% of subscriptions, up five times from last year. What are you saying now, you might have said it on the call, but if you repeat it, about where you are going to be at the end of fiscal 2027, and how much is new logos versus conversion of existing customers?

Speaker #5: Great. Thanks. So platform one bookings are over 50% of subscriptions. Up five times from last year. Can you just what are you saying now?

Speaker #5: You might have said on the call but if you repeat it about where you're going to be at the end of fiscal 27 and how much is new logos versus conversion of existing customers?

Ed Meyercord: Yeah, let me cover the first part, and Kevin, I will let you jump in on the new logo number if we are sharing that. But Mike, by the end of this year, we expect half of our customers to be on the platform, which it is the fastest move and migration that we have ever seen. But at the end of this past year, we had 10% of our customers on the platform, and we would expect that number to grow to over 50% of our customers on Platform ONE at the end of this fiscal year. Then that number growing to approximately 80% the following year. The adoption has been very high. Our teams commercially have done a great job positioning and selling Platform ONE. I think you can see demand for the most modern industry tools and also the differentiation that we bring.

Speaker #4: Yeah. Let me cover the first part and Kevin I'll let you jump in on the new logo number if we're sharing that. But Mike by the end of this year we expect half of our customers to be on the platform.

Speaker #4: It's the fastest move and migration that we've ever seen, but at the end of this past year, we had 10% of our customers on the platform, and we would expect that number to grow to over 50% of our customers on Platform One at the end of this fiscal year.

Speaker #4: And then that number growing to approximately 80% the following year. So the adoption has been very high. Our teams commercially have done a great job positioning and selling platform one.

Speaker #4: I think you can see demand for the most modern industry tools and also the differentiation that we bring. It does from a new logo perspective the market is interested in how to leverage AI and how to leverage modern networking tools the most modern networking tools as they consider investments into the future.

Ed Meyercord: It does, from a new logo perspective, the market is interested in how to leverage AI and how to leverage your modern networking tools, the most modern networking tools, as they consider investments into the future. It is giving Extreme more at-bats and more opportunities. Kevin, I do not know if we are sharing exact percentages in terms of new logo, but I would expect new logo adoption to be closer to 100%.

Speaker #4: So it's giving extreme more at best and more opportunities. Kevin I don't know if we're sharing exact percentages in terms of new logo but I would expect new logo adoption to be closer to 100%.

Kevin Rhodes: I would agree. That is what I was going to say. It is like, when we are going to market right now, Mike, we are going to market with Platform ONE, and that is all new logo activity. That is where we are center staging, focusing that technology, for that new logo. Then, of course, you have got the movement of the migration of all the customers into Platform ONE as well. That happens more episodically as they come up for renewal. But we are seeing tremendous success in existing customers moving over into Platform ONE. It is not a big lift for them to move from XIQ into Platform ONE. We saw even one customer hospital system do it in 40 some odd minutes. You get the benefit of the AI, and you get the benefit of all the new technology that we are building there.

Speaker #2: I would agree. That's what I was going to say is like you know when we're going to market right now Mike we are going to market with platform one and that is all new logo activity.

Speaker #2: That's where we're you know kind of center staging focusing that technology you know for that new logo. And then of course you've got the you know the movement of the migration of all the customers into platform one as well.

Speaker #2: And that happens more episodically as they come up for renewal. But we are seeing you know tremendous success in existing customers moving over into platform one.

Speaker #2: And it's not a big lift for them to move from XIQ into platform one we saw even one customer a hospital system do it in 40 some odd minutes.

Speaker #2: So it is you get the benefit of the AI and you get the benefit of all the new technology that we're building there. And so people are eager to go and move.

Kevin Rhodes: People were eager to go and move. We do not have percentages there that we are sharing, but I would say it is really strong across the board.

Speaker #2: So we don't have percentages there that we're sharing but I would say it's really strong across the board.

Mike Genovese: Great. Just for my follow-up, on the monetization of Agent ONE Coworker and also Extreme Exchange zones, is this monetized through the subscription, through utilization? Does it pull through hardware? How do we think about monetizing these things?

Speaker #5: Great. Great. And then just for my follow up on just the monetization of agent one coworker and then also exchange zones you know is this monetized through the subscription through you know utilization?

Speaker #5: Does it pull through hardware? Like how do we think about monetizing these things?

Ed Meyercord: Sure. They are different. We came out with Coworker in September, which was our second generation AI platform, if you will. That is where we made the move from what we would call conversational-based AI, which is where the industry is. Simply put, you have to prompt AI in order to get an answer. It is almost chatbot-ish, where people are having to converse, if they want to use AI. In this case, Coworker is conversational. It is included in the subscription. All of our customers have it, and that is what we are excited about. We mentioned 10x the usage because it is always on. It is context aware of your network. It is always on, it is ambient, it is proactive, and it is watching what you are doing.

Speaker #4: Sure. And yeah and they're different. So we came out with coworker in September which was our second generation AI platform if you will. And that's where we made the move from you know what we would call conversational based AI which is where the industry is simply put you know you have to prompt AI in order to get an answer.

Speaker #4: So it's sort of it's almost chat bot ish where people are having to converse if they want to use AI. In this case coworker is conversational.

Speaker #4: It's included in the subscription. So all of our customers have it and that's what we're excited about and we mentioned you know 10x the usage because it's always on.

Speaker #4: It's context aware of your network. It's always on. It's ambient. It's proactive. And it's watching what you're doing. And if it feels that it can support you or if it can highlight let's say a network issue or a solution or suggest a workflow et cetera it's going to do that.

Ed Meyercord: If it feels that it can support you or if it can highlight, let us say a network issue, or a solution, or suggest a workflow, et cetera, it is going to do that. That is that Nudge we are talking about. That is built into the platform, and what we are seeing is the customer adoption engagement with our platform, which we are already on our second, is far greater than what we have with what was our old AI Expert. When we move into Operator Mode, which does contain the governance element of our agents, that element of Operator is already out there. We are introducing new features and new capabilities, like what we said in terms of localization of data as it relates to data sovereignty. Some people wanting to keep workloads in the enterprise on campus without going out to the cloud.

Speaker #4: And so that's that nudge we're talking about. So now that's built into the platform. And what we're seeing is the customer adoption and engagement with our platform, which is—we're already on our second—is far greater than what we had with what was our old AI expert.

Speaker #4: When we move into operator mode, which does contain the governance element of our agents, that element of operator is already out there. But we're introducing new features and new capabilities, like what we said in terms of localization of data as it relates to data sovereignty—some people wanting to keep workloads in the enterprise, on campus, without going out to the cloud.

Ed Meyercord: Survivability from a security standpoint, if you do not want to get disconnected from the cloud and you want to hold the workloads local. That is what is coming out in Operator Mode. The big change for Extreme, from a revenue perspective, will be in token economics for Extreme. We are calling tokens agent actions, and these agent actions will bring in a new stream of revenue for Extreme, and this is where we are talking about unlocking data in the network for other use cases outside of traditional network management. The idea that we can work with stadium customers in enhancing the fan experience or the patient experience, or supporting caregivers in a healthcare environment or retail outcomes from a supply chain standpoint or from a consumer standpoint.

Speaker #4: Survivability from a security standpoint if you don't want to get disconnected from the cloud and you want to hold the workloads local that's what's coming out in operator mode.

Speaker #4: And the big change for extreme from a revenue perspective will be in token economics for extreme we're calling tokens agent actions and these agent actions will bring in a new stream of revenue for extreme and this is where we're talking about unlocking data in the network for other use cases outside of traditional network management.

Speaker #4: So the idea that we can work with stadium customers and enhancing the fan experience or the patient experience or supporting caregivers and a healthcare environment or retail outcomes from supply chain standpoint or from consumer standpoint.

Ed Meyercord: The list goes on and on, and there is a lot of different ways when you think about the network being literally in the middle of everything, the network being strategic and all the data in the network. This is where we are excited in H1 of calendar 2027, the H2 of our fiscal, to bring Operator Mode to bear for customers. And we are already working with what we are calling our foundry customers on applications and ways to leverage data from the network in this new platform.

Speaker #4: The list goes on and on and there's a lot of different ways when you think about the network being literally in the middle of everything the network being strategic and all the data in the network this is where we're excited in the second half of calendar 27.

Speaker #4: I'm sorry in the first half of calendar 27. The second half of our fiscal to bring operator mode to bear for customers. And we're already working with what we're calling our foundry customers on applications and ways to leverage data from the network in this new platform.

Operator: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from the line of Eric Martinuzzi from Lake Street Capital Markets. Please go ahead.

Speaker #1: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Your next question comes from the line of Eric Martinuzzi from Lake Street Capital Markets.

Speaker #1: Please go ahead.

Eric Martinuzzi: Ed, you commented on your 3 key pillars of the growth story. I wanted to focus in on the upmarket move. I think when you exited FY26, you guys were talking about the million-dollar-plus opportunities in the funnel up by mid-teens year-over-year. Where does that stand today? Obviously, you had good success in Q1, but where are we with the 9 months to go in the fiscal year?

Speaker #5: Yeah. And you commented on your three key pillars of the growth story. I wanted to focus in on the up market move I think when you exited FY 26 you guys were talking about the million dollar plus opportunities in the funnel up by mid-teens kind of year over year.

Speaker #5: Where does that stand today? Obviously you had good success in Q1 but where are we with the nine months to go in the fiscal year?

Ed Meyercord: Eric, it is actually up a bit. I think you would see that number would be up over 20%, depending on the period that you are looking at, because our funnel, obviously, we slice and we are looking at it by quarter for the rest of the fiscal year. We see these opportunities continuing to grow, and that percentage in the funnel growing beyond the mid-teens number that we discussed.

Speaker #4: Eric, it's actually up a bit. So, I think you would see that number would be up over 20 percent, depending on the period that you're looking at, because our funnel, obviously, we slice and we're looking at it by quarter for the rest of the fiscal year.

Speaker #4: So we see these opportunities continuing to grow and that percentage in the funnel growing beyond the mid-teens number that we discussed.

Eric Martinuzzi: Terrific. I am always curious about competitive displacements, but the Austrian bank win back that you described, first of all, why did they leave? Second of all, why did they come back?

Speaker #5: Terrific. And then I'm always curious about competitive displacements but this the Austrian bank win back that you described first of all sort of why did they leave and then second of all why did they come back?

Ed Meyercord: Yeah. In that case, this was a win against one of the largest players in the industry, I should mention. So it was less about them leaving, it was more about them coming to Extreme. We talk about Cisco fatigue in the marketplace, and that ebbs and flows. When we look at our solution set, we are bringing simplicity, and we are bringing a focus on end-to-end networking solutions all in one platform with a highly differentiated fabric technology for campus, and a very competitive wireless solution. So I think when all this gets packaged up, we wind up being, I think, more compelling from a technology perspective, and I think from a commercial perspective, a lot more attractive as people evaluate total cost of ownership. We have some large wins.

Speaker #4: Again one of the I mean in that case this was a win against one of the largest players in the industry I should mention.

Speaker #4: So it was less about them leaving. It was more about them coming to extreme we talk about Cisco fatigue in the marketplace and that ebbs and flows when we look at our solution set we're bringing simplicity and we're bringing a focus on end-to-end networking solutions all in one platform with a highly differentiated fabric technology for campus and a very competitive wireless solution.

Speaker #4: So I think when all this gets packaged up we wind up being I think more compelling from a technology perspective and I think from a commercial perspective a lot more attractive as people evaluate total cost of ownership.

Speaker #4: We have some large wins we've had in virtually all of our GOs, where we're getting in the door with some very large opportunities and we're having success converting those.

Ed Meyercord: We have had, in virtually all of our geos, where we are getting in the door with some very large opportunities, and we are having success converting those. We mentioned a $10 million win with a very significant healthcare company in the US this past quarter, that is essentially a new logo win for Extreme and a displacement of a large customer. Again, it is that fabric technology that people like. It is the combination of our Wi-Fi and our ability to support highly complex environments. Then it is putting it all together end to end, wired, wireless, the whole portfolio is in a platform. Our competitors have software that sits on top of other software, so they still keep the distinct user interfaces of all those software platforms running, and really, you are just left with an over-the-top software. We actually have a legitimate platform where there is one interface for all the technology.

Speaker #4: We mentioned a 10 million dollar win with a very significant healthcare company in the US this past quarter that is essentially a new logo win for extreme and it displacement of a large customer and again it's that fabric technology that people like it's the combination of our Wi-Fi and our ability to support highly complex environments and then it's putting it all together end-to-end wired wireless the whole portfolio is in a platform and our competitors have software that sits on top of other software so they still keep the distinct user interfaces of all those software platforms running and really you're just left with an over-the-top software.

Speaker #4: We actually have a legitimate platform where there's one interface for all the technology and having everything in one place and then having these new AI tools is very compelling for customers.

Ed Meyercord: Having everything in one place, and then having these new AI tools is very compelling for customers.

Eric Martinuzzi: Got it. Congrats on the quarter and outlook.

Speaker #5: Got it. Congrats on the quarter and outlook.

Ed Meyercord: Thanks, Eric.

Speaker #4: Thanks Eric.

Operator: Your next question comes from the line of Tomer Zilberman from Bank of America. Please go ahead.

Speaker #1: Your next question comes from the line of Tomer Zilverman from Bank of America. Please go ahead.

Tomer Zilberman: Hey, guys. Can you hear me?

Speaker #6: Hey guys. Can you hear me?

Ed Meyercord: We can.

Ed Meyercord: Yeah, we got you, Tomer.

Speaker #4: We can. Yeah, we got you, Tomer.

Tomer Zilberman: Great. Two questions for you guys. Maybe to start off with the guidance raise. You went from 8% guide previously, now you are going back to 10%, which is more in line with your long-term framework that you set out for us last year. I just want to ask effectively, what changed? Is it a quicker transition through the subscription to the Platform ONE that you previously said that would be a transition year this year? Is it better demand on the product front? Is it a byproduct of maybe pricing increases given the supply constraints we are seeing? Where is the additional growth coming from?

Speaker #6: Great. Two questions for you guys. Maybe to start off with the guidance raise right. You went from 8 percent guide previously. Now you're going back to 10 percent which is more in line with your long-term framework that you set out for us last year.

Speaker #6: I just want to ask—effectively, what changed? Is it a quicker transition through the subscription to the platform, the one that you previously said would be a transition year this year?

Speaker #6: Is it better demand on the product front? Is it kind of a byproduct of maybe pricing increases given the supply constraints we're seeing? Where is the additional growth coming from?

Speaker #4: Well Tomer you hit the nail on the head. It's both. So we're ahead of plan in terms on the recurring revenue side in terms of the adoption of platform one which has been the big driver of growth.

Ed Meyercord: Tomer, you hit the nail on the head. It is both. So we are ahead of plan on the recurring revenue side in terms of the adoption of Platform ONE, which has been the big driver of growth. We look at the year-over-year comparison of being in the Call it low single digits a year ago into the mid-20s a year later in terms of adoption of Platform ONE subscription. So that has been driving a higher recurring revenue number than maybe we had earlier, and so we have the confidence. We see that continuing going forward. The other is 12% product growth, and that is driven by the opportunities we have in the funnel. Eric asked about some of these larger opportunities in terms of these million-dollar-plus opportunities and what does that growth look like. It is a very healthy outlook in terms of the funnel of opportunities we have.

Speaker #4: We look at the year over year comparison of being at in the call it low single digits a year ago into the mid-20s a year later in terms of adoption of platform one subscription.

Speaker #4: So that has been driving a higher recurring revenue number than maybe we had earlier, and so we have the confidence—we see that continuing going forward.

Speaker #4: The other is 12 percent product growth and that's driven by the opportunities we have in the funnel. Eric asked about some of these larger opportunities in terms of these million dollar plus opportunities and what does that growth look like?

Speaker #4: It's a very healthy outlook in terms of the funnel of opportunities we have. If you recall we now have 20 different pods we're forecasting and driving growth for each one of those in terms of funnel creation and we're carefully evaluating how we're converting on these funnels and so we're extremely tactical in how we're managing this and have visibility so from the bottoms up the call is coming from confidence at the pod level of the funnel creation and funnel conversion and our confidence in delivering the higher number.

Ed Meyercord: If you recall, we now have 20 different pods. We are forecasting and driving growth for each one of those in terms of funnel creation, and we are carefully evaluating how we are converting on these funnels. We are extremely tactical in how we are managing this and have visibility. From the bottoms up, the call is coming from confidence at the pod level of the funnel creation and funnel conversion and our confidence in delivering a higher number.

Tomer Zilberman: Got it. Maybe as a follow-up then, talking about the pipeline opportunity, I just want to understand where we are in this competitive displacement cycle. Meaning, we have talked for some time now about the opportunity to displace the top two incumbents. One, Cisco because of channel disruption, and two, Juniper and HPE and their integration challenges. Do you see the same level of displacement opportunity that you may have seen a year ago, or are these companies, is the integration between the two tightening and getting better, and maybe channel disruption is not as big of an opportunity as it was, say, a couple of quarters ago?

Speaker #6: Got it. Maybe as a follow up then talking about the pipeline opportunity. I just want to understand where are we in this competitive displacement cycle meaning we've talked for some time now about the opportunity to displace the top two incumbents one Cisco because of channel disruption and two Generator and HPE and their integration challenges.

Speaker #6: Do you see the same level of displacement opportunity that you may have seen a year ago or are these companies is the integration between the two tightening and getting better and maybe channel disruption is not as big of an opportunity as it was say a couple of quarters ago?

Ed Meyercord: Yeah, I think the opportunity is as good as it has been. We are seeing as it relates to, I will just hit HPE and Juniper first. People may have seen their ads about self-driving network, and their ad is very far away from the truth of what they are actually delivering to customers, and that is not lost on customers. There is a discrepancy between wired and wireless and cloud and non-cloud. Mist had a very strong competitive position, and they have fallen back. Then there is a question about how the Aruba portfolio and how that will even fit. They have said those two product portfolios won't come together. So if you are an enterprise customer making a long-term decision, it introduces a fair amount of risk depending on where your technology sits today. Cisco is focused on a lot of other things besides networking, and they are the most aggressive in raising price.

Speaker #4: Yeah. I think the opportunity is as good as it's been. We're seeing as it relates to I'll just hit HPE Juniper first. People may have seen their ads about self-driving network and their ad is very far away from the truth of what they're actually delivering to customers and that's not lost on customers.

Speaker #4: And there's a discrepancy between wired and wireless, and cloud and non-cloud. NIST had a very strong competitive position, but they've fallen back. Then there's a question about the Aruba portfolio and how that will even fit.

Speaker #4: They've said those two product portfolios won't come together so if you're an enterprise customer making a long-term decision it's there's a it introduces a fair amount of risk depending on where your technology sits today Cisco is focused on a lot of other things besides networking and they're the most aggressive in raising price and so if you're looking for the most complicated bundle of solutions and the most expensive it's Cisco and a lot of customers don't want to have everything together.

Ed Meyercord: If you are looking for the most complicated bundle of solutions and the most expensive, it is Cisco. A lot of customers do not want to have everything together. They will look and say, "I would like the best in breed, Cisco compared to, let us say, Extreme and Palo Alto." There is much better value and capability going with the Extreme Palo solution and having best of breed, as opposed to paying a lot more and having a lesser solution from this larger entity. So they create disruption and share opportunities. That is at the customer level, but also within the channel and at the channel level. Cisco, they are asking customers right now, they are meeting in Vancouver.

Speaker #4: They'll look and say I'd like the best in breed Cisco compared to let's say extreme and Palo Alto there's much better value and capability going with the extreme Palo solution and having best of breed as opposed to paying a lot more and having a lesser solution from this larger entity.

Speaker #4: So they create disruption and share opportunities. That's at the customer level, but also within the channel and at the channel level. And Cisco is asking customers right now — they're meeting in Vancouver.

Ed Meyercord: They are asking their channel partners to do a lot more to try to sell the entire portfolio, and that is not necessarily what people want in the networking world, where buying cycles are different, buyers are different, and there is not necessarily this synergistic fit between what they are trying to mash together. That creates some frustration, and it creates opportunities for us where people view their ability to make more money from the channel where they can make more money with Extreme on the networking side.

Speaker #4: They're asking their channel partners to do a lot more to try to sell the entire portfolio, and that's not necessarily what people want in the networking world, where buying cycles are different.

Speaker #4: Buyers are different and there's not necessarily this synergistic fit between what they're trying to mash together. So that creates some frustration and it creates opportunities for us where people view their ability to make more money from the channel where they can make more money with extreme and the networking side.

Tomer Zilberman: Got it. Thank you.

Speaker #6: Got it. Thank you.

Operator: Your next question comes from the line of Dave Kang from B. Riley. Please go ahead.

Speaker #1: Your next question comes from the line of Dave Kang from B. Riley. Please go ahead.

Dave Kang: Thank you. Good morning. My first question is regarding the supply chain situation. Just wondering if any revenue was left on the table. My follow-up is on gross margin. Just wondering if your long-term target is still mid-60s, which is about what, 200 bps away. Just wondering what the catalyst will be to get to that mid-60s.

Speaker #7: Thank you. Good morning. My first question is regarding the supply chain situation. Just wondering if any revenue was left on the table and my follow up is on gross margin.

Speaker #7: Just wondering if your long-term target is still mid-30s, which is about 200 bps away. Just wondering what the catalyst will be to get to that mid-30s.

Ed Meyercord: Yeah. Dave, I will take it at a high level. Starting with the question about supply chain. We do not feel our numbers are constrained. I would say going forward, we continue to market this with our distributors and with channel partners to make sure the word is out that Extreme has supply. Every quarter, there is always some level of product constraint that might happen at the end of the quarter where maybe products do not ship out. But it is at normal levels for us, not at unusual levels. In terms of the gross margin, we see a step function in our recurring revenue, and our recurring revenue margins will contribute. As you know, we are putting together service and subscription in the Platform ONE bundle, and that creates some technical issues, and it is a technical drag on revenue in the years of heavy migration that we are in right now.

Speaker #4: Yeah. Dave I'll take it. At a high level starting with the question about supply chain we don't feel our numbers are constrained so I would say we and going forward we continue to market this with our distributors and with channel partners to make sure the word is out that extreme has supply.

Speaker #4: There is every quarter there is always some level of product constraint that might happen at the end of the quarter where maybe products don't ship out.

Speaker #4: So but it's at normal levels for us not at unusual levels. In terms of the gross margin we see a step function in our recurring revenue and our recurring revenue margins will contribute as you know we're putting together service and subscription in the platform one bundle and that creates some technical issues and that's a technical drag on revenue in the years of heavy migration that we're in right now and that recurring revenue growth rate that we called in the mid to now higher single digit range will step into the teens and will step into the 20 percent range overall for recurring revenue.

Ed Meyercord: That recurring revenue growth rate that you called in the mid to now higher single-digit range, will step into the teens and will step into the 20% range overall for recurring revenue. Given the margins of recurring revenue, that will be a big driver. Kevin, do you want to comment maybe with a little more granularity?

Speaker #4: And given the margins on recurring revenue, that will be a big driver. Kevin, do you want to comment, maybe with a little more granularity?

Kevin Rhodes: I think you are right there, Ed. That is what we are expecting, is we are expecting this acceleration, especially in SaaS deferred revenue. As we sell more and more Platform ONE subscriptions, you will get the Rule of 78 benefit, where you see more revenue coming and contributing next year of what we sell this year, and the same with the year after. You are going to see more higher value, higher contribution revenue come into the model over the next couple of years, and that is going to lift us. The other concept here, Ed, as well, is that we do expect some of these memory costs and other component costs to come down over time. But we are in an environment where prices have never gone backwards.

Speaker #2: I think you're right there Ed. That's what we're expecting is we're expecting this acceleration especially in SaaS deferred revenues we sell more and more platform one subscriptions you'll get the rule of 78 benefit where you see more revenue coming in contributing next year of what we sell this year and the same with the year after and so you're going to see more higher value higher contribution revenue come into the model over the next couple of years and that's going to lift us.

Speaker #2: The other concept here Ed as well is that we do expect some of these memory costs and other component costs to come down over time but we're in an environment where prices have never gone backwards and so we should be able to see some improvement in product margins over time as well.

Kevin Rhodes: We should be able to see some improvement in product margins over time as well, A, from a scale perspective, but also just component cost reductions over time, too, where we maintain our pricing. I think we have got a couple of levers here to drive improved gross margins over time on that front.

Speaker #2: A from a scale perspective but also just component costs reductions over time too where we maintain our pricing so I think we've got a couple of levers here to drive improved gross margins over time on that front.

Ed Meyercord: Thank you.

Speaker #7: Thank you.

Kevin Rhodes: Thanks, Dave.

Speaker #2: Thanks Dave.

Operator: At this time, there are no further questions. I would now like to turn the call back to Ed Meyercord, CEO, for closing remarks.

Speaker #1: At this time there are no further questions. I would now like to turn the call back to Ed Meyercord CEO for closing remarks.

Ed Meyercord: Well, thank you all for joining us this morning. It was a strong quarter. As we are calling, we see the continued momentum in the business. Just a shout-out to our employees who are listening in. We appreciate all of the hard work and all of the effort to deliver on the outcomes. Thanks, everybody, and have a great day.

Speaker #4: Okay. Well thank you all for joining us this morning. It was a strong quarter. And as we're calling we see the continued momentum in the business.

Speaker #4: We just want to give a shout out to our employees who are listening in. We appreciate all of the hard work and all of the effort to deliver on the outcomes.

Speaker #4: Thanks, everybody, and have a great day.

Operator: This concludes today's call. Thank you all for attending. You may now disconnect.

Speaker #1: This concludes today's call. Thank you all for attending. You may now disconnect.

Operator: This event has now concluded. Thank you for joining Extreme Networks Q1 FY27 Financial Results. The line will disconnect automatically.