Extreme Networks, Inc.

Thank you for standing by, and welcome to the Xtreme Network's Q3 fiscal year 2021 financial results call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then 1 on your telephone. Please be advised that today's call is being recorded. If you require additional assistance, press star then 0 to reach an operator. I'm now going to hand the call over to Stan Kubler. Please go ahead.

Thank you, Operator, and good morning, good afternoon, and welcome to the Xtreme Network's third fiscal quarter 2021 earnings conference call. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations. 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, is available in the investor relations section of our website at extremenetworks.com. I'd like to remind you that during today's call, our discussion may include forward-looking statements about Extreme Networks, financial and operational results, growth expectations and strategies, the impact of the COVID pandemic, challenges in our supply chain, the impact of tariffs, 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 30th, 2020, filed with the SEC, and any additional risk factors in subsequent 10-Q filings. Any forward-looking statements made on this call may 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's President and CEO, Ed Myercord. Ed, go ahead.

I was on mute. Thank you, Stan, and thank you all for joining us this morning. Q3 marks a full year since the world and Xtreme began to feel the significant effects of COVID. I want to recognize and acknowledge the truly remarkable efforts of Xtreme employees and their families and our extended community of partners, customers, and investors in getting through the past year. And we're very focused on our teams and countries currently being hard hit by the virus, especially India, where we have many of our employees. Fortunately, Xtreme has emerged in a stronger competitive position with higher gross and operating margins and two substantial growth factors. our cloud-driven enterprise business, and 5G network infrastructure opportunities, which are gaining momentum. In addition, as a company, we have increased our focus on corporate social responsibility with marked progress in diversity and inclusion, sustainability, and our philanthropic initiatives to bridge the digital divide. Our employees have fully embraced and taken the lead on important initiatives, such as the rapid expansion and success of our diverse employee communities the growth of our highly successful Extreme Academy educational platform, and our upcoming Global Day of Giving on May 6th. The strength of our Q3 results is highlighted by a fourth consecutive quarter of sequential growth, defying the traditional seasonality of our business. And we also delivered 21% year-over-year growth, driven by increased customer demand and continued improvement of our team's execution. To that end, 26 customers spent over a million dollars with Xtreme in Q3. Coming out of COVID, we are seeing significant government stimulus spending initiatives for projects around the globe that will fuel growth at Xtreme. With over a third of our business focused on state, local government education, we expect to benefit from new programs such as the American Rescue Plan in the U.S., Digital Pact in Germany, Giga Schools in Japan, among others. This quarter also marked the completion of the E-rate season in the U.S., where our filings were up 35% year-over-year, and we crossed the 100 million mark for the first time ever. Enterprise customers around the world are planning for a more flexible work environment and what that means for supporting their customers and employees. It's universally accepted that the new edge of enterprise networks will become permanently more distributed and what we call the infinite enterprise. As customers contemplate the increased complexity of delivering secure and consistent user experiences across a vastly distributed enterprise, cloud is the logical platform to challenge complexity. As networks are reimagined, Xtreme is more relevant today than ever before. We have true technology differentiation, and this creates more at-bats for us. and we're advancing further and further and winning more opportunities given the strength of our competitive solutions. We are building a fast-growing cloud-native software subscription business at Xtreme with our high-growth, high-margin Xtreme Cloud IQ platform, what we call XIQ. We have a unique opportunity to rapidly expand the number of devices managed in our cloud as well as increasing the number of cloud-native services we introduce through XIQ, and this is our enterprise cloud strategy. XIQ is the only cloud networking platform with cloud choice, unlimited data, and ISO-certified security. In addition, we've made significant progress in developing our next-generation AI capabilities in XIQ that we refer to as explainable AI. Simply put, we explain our alerts. Current solutions in the market generate unnecessary alarms and are creating alarm fatigue with enterprise customers. Our alerts will be both explainable and 99.9% false alarm free. It has been in select customer environments for a year and will soon be launched under our co-pilot license for XIQ, along with enhancements for AI and ML Insights for our entire portfolio. This technology will go into public beta in June and will be available to every extreme user. Uptake of our cloud subscription services remains strong. New cloud subscription bookings grew 122% year-over-year in Q3, marking the third consecutive quarter new cloud bookings more than doubled year-over-year. As the second largest cloud-based networking vendor, we currently manage 1.6 million devices on XIQ. This marks seven straight quarters of rapid growth in customer accounts and managed devices. In early Q4, we made key leadership hires in our new cloud success team and reorganized our services capabilities to drive user adoption and continue the rapid growth in the number of devices on XIQ. The speed of our cloud innovation is accelerating. In addition to co-pilot, we are making inroads into three key areas in the near term. First, we offer the simplest licensing construct in the industry. Our pilot license for XIQ includes management, location, guest portal, wireless security, personal pre-shared keys, and IoT applications for one price for all devices. Now we are unifying our network access control, or NAC, product portfolio with the same approach. Whether customers consume NAC in the cloud or on-prem, they can buy under one simple license. This is the best value solution on the market for NAC. Second, we have upgraded 20% of our portfolio to universal hardware, and we're on the path to refresh 90% of our portfolio by December. The launch of our 5520 universal switch was the most successful launch we've had in recent history. In this quarter, we are introducing our 5420 universal platform focused on the volume tier of the market. So we are seeing an even higher unit volume launch. The universal series brings native cloud management through XIQ and the latest generation chipset from Broadcom with a brand new ASIC and the highest power output PoE ports to run IoT devices. Our universal hardware puts us in a leading position to support the growth in IoT with a simple plug and play connection. And finally, it's no longer just enough to have an open API in today's connected world. APIs need to be high fidelity and operate in real time. To that end, our latest generation open API framework will enable high fidelity translation and near real-time ecosystem integration from extreme products and tools. Our framework is seven to ten times faster than our competitors' traditional RESTful APIs currently in the market. The automation of our business continues to help us drive sales productivity with initiatives such as channel self-service, touchless quoting, and provisioning. Sales automation has become a force multiplier and is helping us onboard new partners, grow our customer base, and increase transaction volume. In our service provider business, our expertise in cloud technologies puts us in a great position to innovate with our cloud-native infrastructure solutions for 5G. Next-generation networks are being developed on a more distributed architecture using principles we've developed and our cloud-native enterprise business. 5G providers are aggressively moving in this direction. This gives us increased confidence in our growth plan. Our solution is being actively tested by large service providers around the world, and we have clear visibility to the ramp in sales. We're also hitting all other milestones in our 5G product development related to our packet broker technology. We have an exciting product launch coming up this summer, built on the latest generation barefoot Intel technology. We'll talk more about it at our Connect user conference in May, where we'll reveal important industry-leading technology advancements. Finally, we continue to deliver the highest quality customer and partner experience in the industry. In Q3, we hit record all-time customer satisfaction scores. Customers like working with Xtreme because of our focus, level of engagement, our partnering approach, and the fact that we don't outsource. We remain committed to this higher-tier service delivery differentiation. Heading into Q4, we're on plan to achieve double-digit year-over-year revenue growth, over 60 percent gross margins, and rising double-digit operating margins. Our funnel of opportunities remains strong, and our visibility continues to improve as we emerge as a stronger and more competitive company and take share. Importantly, we have all the right players in place to drive future growth and execute our operating plans. We expect our momentum to continue beyond fiscal 21 and realize a level of organic growth we have not witnessed for many years. And with that, I'll turn the call over to our CFO, Remy Thomas.