Extreme Networks, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Xtreme Network's Q1 FY23 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 1-1 on your touchtone telephone. I would now like to turn the call over to your host, Dan Kovler. You may begin. Thank you, Kevin.

Welcome to Xtreme Network's first quarter 2023 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, Rami Tamak. 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 gap to non-gap reconciliations, is available in the Investor Relations section of our website at XtremeNetworks.com. I would like to remind you that during today's call, our discussion may include forward-looking statements about Xtreme's future business, financial and operational results, growth expectations, and strategies. All financial disclosures on this call will be on a non-GAAP basis unless stated otherwise. We caution you not to put too much 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 and our risk factors in our 10-K report for the period ended June 30th, 2022. That's 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 as required, except as required by law. Now, I will turn the call over to Xtreme's President and CEO, Ed Meyerchord.

Thank you, Stan, and thank you all for joining us this morning. We had a record quarter. as demand for cloud-driven networking and for extreme solutions has never been stronger. Again, our share gains are evident by double-digit revenue growth, record revenue, and continued growth of backlog, which now sits at $555 million. The sequential increase in revenue and margins led to continued improvement in our operating model, and we achieved EPS of 20 cents in Q1, up from 15 cents in Q4. we expect these bottom line earning trends to continue. The combination of our Fabric and cloud solutions are driving significant differentiation for Xtreme. Our Fabric technology, deployed in over 7,500 campus networks globally, delivers network automation, hypersegmentation, and unmatched security. Today, our Fabric provides simplicity and ease of use for local area network deployments from the campus core to the wireless edge. In calendar Q1, we're extending our fabric across the wide area network, bringing new features and security to our enhanced SD-WAN solution. With Extreme Cloud IQ, our customers have complete visibility and management of network devices and connected clients throughout the entire enterprise, end-to-end across local and wide area networks. The intelligence and automation tools we bring in our co-pilot license, such as Digital Twin and AIOps are game changers. Highlighting the value of our co-pilot solution, one of our customers is on record saying, with co-pilot, I'm finding problems in the network that I didn't know existed, and now I have readily available solutions that I didn't have without the tool. Both our fabric and cloud solutions stole the show at our oversubscribed sales kickoff event for direct sellers and channel partners, where we hosted over 1,000 people in Boston in August. At Xtreme, we have a unique focus in finding new ways for our customers to deliver better outcomes, leveraging the most advanced cloud and fabric technology. During the quarter, 37 customers spent more than $1 million with Xtreme. Some of our top wins for the quarter include household names. such as the third largest cruise line in the world, where we beat out a large incumbent and we'll be deploying our wired wireless cloud IQ and fabric solution. A 4,000-room luxury hotel going up in Las Vegas that will showcase our fabric along with our cloud IQ site engine. Third largest bank in South Korea that's deploying our data center switching and fabric to protect sensitive customer information and ensure uninterrupted operations. and the world's third largest energy company based in Europe, a global leader in smart grid technology that added more than 2,000 extreme access points, our switching solutions, and cloud IQ. Our sales productivity continues to run at historically high levels, and this will only increase over the next few years given the right sizing of book-to-bill and the release of backlog. There has never been a better time to be a salesperson at Xtreme. And our competitive position has never been stronger. In such a large industry, small share gains have a large impact on Xtreme's top line, making us the fastest growing networking company. Third-party analysts, industry press, and partner community have taken notice, demonstrated by accolades and awards for our solutions and service. For example, this is the fifth year in a row that Xtreme was named Gartner's choice for wired and wireless land access infrastructure based on peer insight. We achieved subscription bookings growth of 60% and annualized cloud SaaS bookings of close to 190 million exiting Q1. Strong demand for innovative cloud solutions is also pulling through product sales, and we believe the level of organic subscription growth we're seeing today is sustainable. In addition, the improvement in supply chain and our ability to deliver products, most notably wireless LAN this quarter, supported a strong pull-through of software subscription. On the supply chain side, we continue to be laser focused on tactical execution to meet our customers' needs. Our distributors give us the highest rank in the networking industry for delivering on our commit dates, and this is driving demand and has become a source of new customer logos and partners for Xtreme. This quarter alone, we qualified an additional 50 component suppliers and reduced our parts shortages. Our success in re-engineering products has also helped ease constraints. Based on all the actions we've taken with our supply chain over the past year, we now have better visibility and confidence in the ramp of our product deliveries. With a strong outlook for bookings growth and the gradual improvement in supply, we expect to build backlog through the end of the fiscal year. We anticipate neutral book to bill or release of backlog in our fiscal Q1 of 24. Once backlog begins to release, it will unlock an accelerated wave of product shipments and revenue growth over multiple quarters. We have complete visibility into our product backlog, the vast majority of which is comprised of orders with current delivery request dates. Our orders are part of essential IT projects that have been carefully designed and planned for customer environments such as stadiums, college campuses, hospitals, and manufacturing facilities. This is why cancellations remain negligible at a fraction of 1%. About half of our backlog consists of the latest generation universal products that pull through subscription and services. So when our backlog shifts, it will also unleash subscription and maintenance services revenue. I recently introduced Universal Switch 5720, designed to support products with higher data throughput, such as our Wi-Fi 6E access points, will be launching later this year. We also launched new outdoor APs, building on our first-to-market status in Wi-Fi 6E. The transition to Universal products continues with nearly 60% of our bookings now on Universal platforms for wired and wireless products. Our sales funnel, our AI tools, and our field forecast all point to healthy bookings trends for the next 12 months. This is a combination of extreme taking market share and the resiliency of cloud-based networking in this environment. I'm excited about the strength and favorable outlook of the networking industry, our growing market share gains from larger competitors, Cloud-driven networking has never been more important, and our competitive position with the highest quality cloud in the industry, combined with unique simplicity and security of our extreme fabric, has never been more impactful. We're poised for accelerated top line growth and margin increases that will drive unprecedented cash flow and earnings growth in future quarters and years to come. With that, I'll turn the call over to our CFO, Remy Thomas.