Extreme Networks, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Extreme Networks Q1 FY21 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star while on your telephone. If you require any further assistance, please press star to zero. I would now like to introduce you to this conference call. Mr. Stan Colbert, you may begin.

Thank you, Operator. Good morning, everyone. Welcome to the Xtreme Network's first fiscal quarter 2021 earnings conference call. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations. And with me today are Xtreme Network's President and CEO, Ed Myercord, and CFO, Remy Thomas. We just distributed a press release and filed an 8K detailing Xtreme Network's financial results for the quarter. For your convenience, a copy of the press release, which includes our GAAP to non-GAAP 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 Xtreme Network's future business, financial and operational results, growth expectations and strategies, the impact of COVID-19 pandemic, acquired technologies, products and new product introductions, operations, pricing, changes to our supply chain, the impact of tariffs, acquisition and integration of Arrowhive 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, 2020, filed with the SEC. Any forward-looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them except as required by law. I also wanted to make you aware that beginning with our first quarter of fiscal 2021, we are changing how we calculate our non-GAAP provision for income taxes in accordance with the SEC guidance on non-GAAP financial measures compliance and disclosure interpretation. We have adjusted the fiscal 2020 non-GAAP tax provision And the impact on EPS for all four quarters of fiscal 2020 is provided in our investor relations deck on our website on page 18. There is no impact to the cash flow of the company. And with that, I will now turn the call over to Xtreme Network's president and CEO, Ed Myercord.

Thank you, Stan, and thank you all for joining us this morning. Our Q1 results mark the second straight quarter of sequential growth and reflects continued improvements in customer demand and our team's execution. As we noted in our pre-announcement, we outperformed our initial expectations of revenue and earnings, grew operating profit on a quarter-over-quarter and year-over-year basis, and paid down $20 million of our revolving credit facility, given the strength of our cash flow in the quarter. And as announced today, we paid down another $20 million last week, given the strong start to Q2. After returning to sequential growth in June, our business in Q1 grew 9% sequentially across all our geographies, most notably in the Americas and APJC, where revenue grew double digits from the prior quarter. We achieved this despite Q1 typically being a seasonally weaker quarter. We also achieved 14% product revenue growth and 20% quarter-over-quarter growth of new cloud subscriptions. We're seeing customers accelerate their migration to extreme cloud IQ. The number of managed devices grew 19% on top of strong growth last quarter, and we now manage 1.4 million devices on the fastest-growing cloud platform in the industry. Daily traffic in our cloud grew from 3 petabytes per day in Q4 to 5 petabytes per day in Q1. Momentum continues to build as evidenced by the numbers. It's the strength of our customer relationships that have allowed us to weather COVID-19. People are always surprised to learn that it's Xtreme's network that supports the critical infrastructure vital to the fabric of our daily lives. And this was the driving force behind our ability to overcome the challenges. When we compete for new logos, it's very powerful When we share customer names, such as Federal Express, Volkswagen, Samsung, University of North Carolina, Kroger, Schneider Electric, WL Gore, the manufacturer of Gore-Tex, Ontario Power Generation, that uses extreme edge-to-cloud solutions at its nuclear power plants, Sherry Tay, the largest hospital in Europe, and one-third of the NHS Trust hospitals in the UK, the New York Stock Exchange, retailers such as El Corte Inglés, Canadian Tire, Macy's, Lowe's, and the list goes on. These customers all rely on Xtreme for their mission-critical infrastructure. And we recently won Major League Baseball, a big win, against our largest competitor. I'm sure many of you may have noticed Xtreme's banner on the right outfield wall and maybe our APs in the dugouts of the World Series in the NLCS. This is the beginning of a long-term relationship with MLB where you will begin to notice Xtreme in all ballparks in the future. You can put a stamp on the fact that Xtreme is clearly playing in the major leagues. We also took important actions to streamline our go-to-market organization to better support both large strategic customer accounts as well as our smaller enterprise customers working with newly formed field teams tightly aligned with partners. At the same time, we've streamlined our engineering organization to drive feature velocity and deliver what we call our universal experience. Both of these actions are allowing us to drive greater efficiencies and higher productivity. It's an exciting time to be in networking. If there's anything we've learned over the past seven months, it's that networking has never been more critical or strategic, and we're in the dawn of a new area a new era where data is king, and this bodes well for extreme. Today's networks are much more complex with multiple applications running across hybrid environments and data being stored in multi-cloud environments. The proliferation of edge devices and distributed architectures, it's about intelligence and insights into customers, employees, connected devices, network and application performance. Today, more than ever before, it's about data data from the network that can be used to drive improved business outcomes in ways that were never contemplated when Xtreme developed the very first gigabit Ethernet switch nearly 25 years ago. So here we are at another one of those inflection points in the networking industry that creates a significant new opportunity for all players. At Xtreme, we're committed to winning with what we're calling effortless networking. And this is about bringing simplicity to complexity, enabling our customers to do more with less by leveraging data and automation. And how are we doing this? There are three main tenets of Effortless. The user experience, the buying experience, and the selling and go-to-market experience. Our strategy and our operating plan is to make all of these easy. As far as user experience, We're aggressively investing in end-to-end innovative solutions, from our core fabric technology to our wired and wireless edge applications, all running on universal hardware that can be managed from a single cloud. And from the cloud, we bring simplicity, complete visibility to the entire network, and the intelligence and insights that come with unlimited data, machine learning, and cloud choice. As for the buying experience, our universal hardware platforms will become available in the middle of this quarter. These platforms provide simpler configurations that support choice of our use cases and multiple OSs, fewer SKUs to manage, and they allow customers to have maximum flexibility to change their network configuration. As for the selling and go-to-market experience, our universal platforms will come with extreme cloud IQ licenses for connectivity to cloud management out of the box. Our customers can still leverage the power of our XMC on-prem software and add additional capabilities from the cloud innovation we bring. Our cloud strategy is not about rip and replace, and it brings total cost of ownership savings to customers with this one enterprise, one network, one cloud approach. We're offering more applications in Cloud IQ than any other provider in the industry. With machine learning and artificial intelligence tools, analytics, air defense security, locationing, all in one license, we added an unmatched number of applications into our Xtreme Cloud IQ license at no additional cost. So this too will significantly reduce the total cost of ownership for our customers and provide us with a competitive advantage by exposing hidden costs of our competitor solutions. And our licensing model is truly unique in the industry, as we are the only one to offer easy-to-use, poolable, and transferable license at a single price for all networking elements, whether it's an access point or a core switch. Through our LEAP program, we're offering flexible payment structures where customers can buy with traditional CapEx or OpEx models Leap usage by our customers was up 50% sequentially in Q1, and we see continued growth in our funnel. And from our own digital transformation perspective, our newly launched channel self-service platform got off to an excellent start and momentum is accelerating. 14% of the quotes generated during Q1 went through channel self-service, which is now up to 41% at this point in Q2. This program offers volume-based promotions to enable zero-touch discounts to our distributors and partners. It's making it easier to drive our long-tail business and is giving time back to our field to build pipelines and develop new opportunities. As we head into our 25th year, there is yet again another inflection point in networking. It's the age of data. It's creating new opportunities for all of us, and there's never been a better time to take advantage being an Xtreme customer. We continue to expect a gradual recovery from COVID to progress throughout fiscal 21 and see good growth in our funnel of opportunities. Xtreme is emerging from all of this as a stronger and a much more competitive company. And with that, I'll turn the call over to our CFO, Remy Thomas. Thanks, Ed.