Extreme Networks, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Extreme Networks Q3 FY20 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to our speaker today, Mr. Stan Kovler. Thank you. Please go ahead, sir.

Thanks, Frederica. Welcome to the Extreme Networks Third Quarter Fiscal 2020 Earnings Conference Call. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations. With me today are Extreme Networks President and CEO, Ed Meyercord, and CFO, Remy Thomas. We just distributed a press release and filed an 8K detailing Extreme Network's third quarter fiscal 2020 financial results. For your convenience, a copy of the press release, which includes our gaps and non-gap reconciliations, and our financial results presentation are both available in the investor relations section of our website at extremenetworks.com. I would like to remind you that during today's call, our discussion may include forward-looking statements about Extreme Network's future business, financial, and operational results Growth Expectations and Strategies, Acquired Technologies, Products, Operations, Pricing, Changes to our Supply Chain, the Impact of Tariffs, Acquisition and Integration of Arrowhide Networks, and Digital Transformation Initiatives. 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 as described in our risk factors in our 10-K report for the period ending June 30, 2019. filed with the SEC, and in our most recent 8K and 10Q filings. Any forward-looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them except as required by law. Now, I will turn the call over to Xtreme Networks President and CEO, Ed Meyercord.

Thank you, Stan, and thank you all for joining us this evening. Our teams have been working closely with our customers and partners impacted by COVID-19 and Thank you very much. The resulting economic fallout of COVID-19 remains an unparalleled headwind. We began to encounter the resulting spending delays from the pandemic in March extending into April when most of our largest markets enacted quarantine and social distancing protocols pushing out deals in our pipeline. Supply constraints along with additional logistics-related challenges in certain countries due to border closures also contributed to the shortfall. Despite the challenges we are all experiencing with the pandemic, we continue to close large deals. All in all, we had 22 customers that spent over a million dollars with us during the quarter, similar to Q2. However, it is taking longer to close because of a number of COVID-19 issues. Remy will discuss the quarter in more detail, but we are building on a base of strong recurring revenue, and we continue to take actions to further strengthen our balance sheet. We feel that we are well positioned to weather the macroeconomic impact of COVID-19. Key highlights during the quarter were completing the integration of ArrowHive on April 6th and migrating all systems and processes to extreme systems while operating remotely across most of our locations. Executing on a new R&D model to drive feature and solution velocity that has been in the works since we reorganized engineering leadership at the end of Q1. The proof points around this were highlighted by cloudifying the edge switching portfolio ahead of schedule with the launch of Extreme Cloud IQ Pilot, offering device agnostic license portability and a simplified licensing and pricing model. By July, our co-pilot automation software suite will be rolled out and management of our fabric portfolio via Extreme Cloud IQ will be added. We made significant progress in our 70% portfolio refresh that is approaching completion. In fact, during Q3, new product revenue remained more stable than revenue from our older products. We upgraded most of our network operations locations for Extreme Cloud IQ to our fourth-gen cloud that has 100% uptime, no need to count the nines for reliability. Our Extreme Cloud IQ application continues to experience growth and we added over 5,000 new customer accounts on the platform with over 40,000 new devices under management. In April alone, we added over 20,000 new devices under management and daily traffic has grown 50% in our management application since the pandemic began and 60% since last quarter. Reducing OpEx with a strategic realignment of both our R&D and our go-to-market organizations and in order to lower our net income break-even point to $220 million in revenue. Our finance team has moved very quickly to secure preliminary and then longer-term covenant waivers from our bank syndicate through March 31, 2021, thereby avoiding potential dilution and or higher price subordinated debt. We continue to see that networking remains vital for our customers despite the virus and demand remains strong. We continue to book very large deals across the product portfolio, including healthcare, government, education, service provider, enterprise and other segments, but they are taking somewhat longer to close. In response to our customer needs, we've rolled out a rapid outdoor connectivity kit to help hospitals and other organizations swiftly extend secure wireless connectivity to pop-up sites in support of quarantine testing and patient care. We work closely with our customers to help them set up remote working and learning environments with portable branch kits. And we launched a flexible financing plan to support our customers that are most in need. Our technology allows distributed campuses to be centrally managed from the cloud. As campuses reopen post-COVID-19, we can help customers through that process. Our new normal work and school environment will be a distributed enterprise with requirements for secure tunneling, remote kits for home and ad hoc work locations, automated provisioning, fabric-attached capabilities for extending networks, and effortless management. In acquiring ArrowHive in August, we took the next step in our strategy, and we are seeing the proof points of that with an inflection in the market of customers wanting to move to cloud-based networking. According to a recent Gartner survey, some of the top CIO priorities in today's environment are IoT, cloud, and employee workforce enablement. Cloud and security are two areas IDC identified as key areas of sustained crisis response. As customers take a more holistic view of a unified work-from-home, wired and wireless environment, the type of networking approach Xtreme can offer Thank you very much. These customers will see lower capex, lower subscription costs, lower cost of ownership, and get higher flexibility along with a more resilient network. This is an example of where COVID-19 offers extreme future opportunities. Networking is essential technology. And while there could be a temporary slowdown in buying, we know that the market will come back. Our customers are experiencing a shift in use cases. Schools are adding APs to their parking lots. Grocery and retail stores will add more in-store pickup capabilities. Sports is cyclical and will come back as it is highly experiential. Public spaces and retail will add more IoT for sensors and other factors. Although many carpeted enterprise customers are likely to consider shrinking their real estate footprint and shifting investment to improve their work from home and Zoom footprint, campus investments and Edge for IoT, Edge Computing and Security are likely to increase and drive growth for networking. Moreover, the post-COVID-19 buying criteria for networking will also change. We believe that it will be less influenced by legacy history considerations and become more influenced by the flexibility for one solution set that can work on the enterprise campus and with a large number of distributed work from home workers. all managed from one user interface. Status quo vendors are not offering this solution, but Xtreme is uniquely positioned in this regard. In realigning our go-to-market organization, we have taken down silos and we are fostering teamwork in the field where all commissioned salespeople will have a targeted number and a common goal. We're also automating capabilities of partners and cloud users to manage the network for ordering and licensing, expanding touchless orders, that aligns with more of our volume motion, particularly around cloud-based networking. These changes will drive improved sales productivity, and we believe this customer-centric approach will also create more run-rate business and stable business for Xtreme and our partners as well. We are excited to announce we hired Wes Durow as our new Chief Marketing Officer. Wes brings new ideas and will drive a more efficient handoff between marketing and sales with higher quality leads and will introduce new processes to shrink our response time, running at cloud speed. Key customer wins during the quarter included the school district of Manatee County in Florida that deployed Xtreme wireless access points in the parking lots of 52 elementary, middle and high schools to allow students who may not have sufficient internet at home to download remote learning assignments. This is how Xtreme is working with its customers in the new normal environment. Several large-scale cross-sale wins includes state and local government win deploying extreme fabric at 200 courthouses underpinned by 4,500 switches and soon to be 4,000 APs to add Wi-Fi capacity for lawyers, judges, and the public and supporting AV technologies such as broadcast and multicast. A large medical center is unveiling a state-of-the-art 1.5 million square foot 17-story hospital with 500 private patient rooms and 47 operating suites. This customer will extend and integrate its fabric deployment to this new facility and recently purchased a variety of Xtreme switching solutions and XMC for this new building. Even as we talk about Xtreme Cloud IQ, our XMC on-premise management suite continues to be adopted by customers. A global infrastructure as a service provider offers compute storage and data centers located in the US, Europe, Hong Kong, and Singapore continue to invest in extreme data center products, reducing provisioning times from hours to minutes, as well as support OpenStack development and SDN initiatives. Through the first month of Q4, our bookings are tracking slightly above our internal expectations and are running at a slightly higher level Thank you very much. I am confident that Xtreme will weather this challenge and emerge from this as a stronger and more cohesive company. And with that, I'll turn the call over to our CFO, Remy Thomas.