Extreme Networks, Inc.

Good day and thank you for standing by. Welcome to the Xtreme Network's first quarter fiscal year 2024 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 will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stan Kofler, Vice President of Corporate Strategy and Investor Relations. Please go ahead.

Thank you, Abigail. Good morning, everyone, and welcome to Xtreme Network's first quarter 2024 earnings conference call. I'm Stan Kofler, Vice President of Corporate Strategy and Investor Relations. With me today are Xtreme's President and CEO and Meijer Cord and CFO, Kevin Rhodes. We just distributed a press release and filed an 8K detailing Extreme 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, along with our earnings presentation. Today's call and our discussion may include forward-looking statements based on our current expectations about Extreme's future business, financial, and operational results, growth expectations, and strategies, All financial disclosures on this call will be made 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. These risks are described in our risk factors in the 10-K report for the period ending June 30, 2023, filed with the SEC. And 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. Following our prepared remarks, we will take questions. And now, I will turn the call over to Xtreme's President and CEO, Ed Myercord.

Thanks, Dan, and thank you all for joining us this morning. Xtreme delivered another strong quarter with revenue growth of 19% and EPS growth of 75%. We continue to move up market, and the dollar value of deals over a million dollars continue to grow quarter over quarter. Cloud adoption remains strong on 30% year-over-year ARR growth to $141 million, and SaaS deferred revenue grew 38% year-over-year. Customer retention metrics remain high, a testament to our customers' loyalty and preference for our industry-leading solutions. We outpaced overall market growth in the quarter and expect continued share gains in fiscal 24 in our core business. Our new go-to-market initiatives outperform in the quarter as well. This includes expansion across APAC, certifications and regulated industries like state and federal government, the addition of seven new managed service providers, and a new disruptive white space opportunity to sell the enterprise through large service providers with a private subscription offer. In addition, we have a plan to license all network devices connected to our evolving extreme cloud platform. This will deliver even greater simplicity, value, and flexibility beyond the cloud management capabilities we offer today and create more stickiness for our SaaS business. Our strategic initiatives around differentiated zero trust posture, expanded machine learning, and AI capabilities are expected to drive expansion, ARR growth, and average revenue per user. At the end of fiscal Q1, we felt the impact of the macro environment trends in our industry and lowered our outlook for near-term top-line growth. The higher interest rate environment and economic challenges in some of our larger markets, like Germany, lengthened sales cycles and pushed out a larger amount of end-of-quarter orders in Q1 than we would normally expect. Our channel partners are digesting a large volume of backlog release and focusing on network deployment slowing down their current ordering. And as a result, we don't expect run rate business to ramp as quickly as anticipated. In light of what we would call an air pocket of demand and decision making, leading to our revised growth outlook for the year, we took immediate action to realign resources to drive higher productivity and profitability. As a result, we continue to expect high teams operating margin in fiscal 24. That will allow us to grow our EPS by over 25% during the year. Our funnel of opportunities continues to grow up double digits on a year-over-year basis as our underlying business and competitive position remains strong. Over the long term, we expect to return to a mid-teens top-line growth outlook and a mid-20s operating margin. And here's why. Customers tell us they're tired of complexity, inflexibility, and the high costs associated with the old networking models from the larger networking companies. They choose Xtreme because we set the bar for modern networking with a combination of innovative and flexible technology, licensing and deployment simplicity, and a focus on driving impactful business outcomes. Customers view their network as a strategic asset to enhance operations, power and scale new services, and reduce business risk, especially cybersecurity risk. Our customers choose Xtreme for three primary reasons. First is operational simplicity. That is driving IT productivity, network availability, ease of use, improving both time to value and total cost of ownership of their networking investment. We're the only networking provider that can deploy campus networking fabrics from our cloud. This makes moves, adds, and changes to networks simple and seamless, allows customers to segment networks and provides unmatched security and resiliency. While fabrics are common in data center environments, we're the only competitor who can bring these services to the dynamic campus environment orchestrated through our cloud. We create one network, one cloud for customers to remove the complexity of managing their entire network infrastructure. Second, we offer unmatched flexibility. We offer cloud choice, public, private, hybrid, and edge cloud deployments that can be managed through a single interface. Our universal switches offer OS choice and deployment options. We have the industry's simplest licensing. Unlike competitors, we don't require our customers to hire full-time employees just to manage licenses. And finally, we're the only networking vendor that can manage a mixed environment without requiring them to rip and replace all their infrastructure at once as they modernize. Third, our cloud solutions offer actionable business insights, security scale, and innovative technologies such as AIOps and automation. Our AIOps solution now cover over 200,000 devices and are gaining traction with large customers as they look for new ways to leverage the network to drive better business outcomes. With our digital twin technology, customers can stage and test their network deployment in a digital environment. shaving months of actual physical deployment and troubleshooting time. Our AIOps solutions proactively identify network issues, reduce false alarms, and allow IT teams to be proactive instead of reactive. Here are a few examples. We help San Diego Community College connect 80,000 students across multiple campuses with our fabric technology. No other vendor in our industry has the expertise or ability to create a single, secure, hyper-segmented campus network that enables zero-touch provisioning of new locations or moves, adds, and changes to network elements within a matter of minutes. With one network running on one cloud, they decreased OpEx by 50%. Again, none of our competitors can do this. The Dubai World Trade Center recently hosted Jitex, the world's largest technology trade show, which was powered by Xtreme's wireless, fabric, and cloud solutions. The venue supported more than 180,000 attendees and 6,000 exhibitors at this massive event. They used extreme fabric to quickly, simply, and securely segment 3,300 individual networks in a matter of days with an IT staff of two people. Conference attendees thought it was impossible. To accomplish this with our competitive solution, it would take weeks with a much larger IT team and introduces significant margin of error due to their complexity. A global leading fast food chain has selected Xtreme Cloud SD-WAN to ensure consistent performance and improve guest experiences at its 1500 locations across the UK. With Xtreme, this industry leader has greater visibility across its network and will be able to simplify network management at all locations, increase overall network security, and optimize operations by improving performance for critical applications. These large accounts become important references and brand builders for Xtreme. Our increasing pool of large, high-profile customers and our technology differentiation is why we continue to see the value of deals over a million dollars grow each quarter. In Q1, we had more than 30 deals over a million dollars. We continue to have a healthy customer order backlog with clear visibility to order with specific customer request dates through the balance of our fiscal year. This quarter, our product lead times normalized, allowing us to continue working down backlog from product constraints. We continue to expect our backlog to settle in a range of 75 million to 100 million by the end of Q4 fiscal 24. Next week at our investor day, we'll dive into specifics as to why our technology differentiation brings unmatched simplicity, flexibility, and insights that are driving more and more of these high profile customer wins. And the wins are elevating our brand and driving share gains both in the channel as well as with our enterprise customers. We'll also share why we're so excited about new commercial opportunities with our recently launched modern managed services platform, a private subscription offer for very large service providers, our highly targeted certification and security, compliance opportunity, and the elevation of our entire portfolio to subscription licensing. All these factors provide accelerants to the share gains we're driving in our core business. And with that, I'd like to turn the call over to Kevin.