Conference Transcript - EXTR 2026-05-12

Ryan Koontz, Analyst — Needham

Welcome to Needham's 21st Annual Technology Media and Consumer Conference. I'm Ryan Koontz. I cover the enterprise, broadband, and optical data center names. I'm really excited to have Xtreme here today. Stan Cobbler, who's CSO and VP of IR. Welcome, Stan.

Stan Kovler, Head of Investor Relations

Thank you, Ryan.

Ryan Koontz, Analyst — Needham

Well, let's dive straight in. You know, just to level set, Stan, you know, I think most folks know what you guys do. You guys have a real brand in the industry. I don't get a lot of questions about what does Xtreme do, but maybe just give a little color on what are the market verticals you guys see the most strength in for your, you know, largely Wi-Fi and kind of campus core switching portfolio?

Stan Kovler, Head of Investor Relations

Yeah, sure. Thanks for having us. We're delighted, you know, every year, like clockwork, we're always here to support you guys. Appreciate it. But so, Ryan, as you were saying, we're in the business of networking for enterprises, large campus environments. And campus is not necessarily just a school campus environment. Campus environment could be something like an NFL stadium. And for us, it could be a data center where some of our partners sell into the telco space.

Ryan Koontz, Analyst — Needham

Factory floor.

Stan Kovler, Head of Investor Relations

Yeah, and where we're seeing a lot of success, to your point about verticals, is we're doing really well with public sector. So public sector is a big chunk of our business, and public sector includes areas like education. Education is doing well for us globally. Last earnings call, we highlighted some of the schools that we had won, like London Business School as one example. So we keep having these marquee customer wins in that sector. The manufacturing sector, that's doing well, too. And it's a combination of, I would say, industrial manufacturing, but also, you know, by default, the second derivative effect of the AI boom. A lot of our customers are involved in some parts of the AI boom manufacturing cycle. It could be customers out in Asia, Europe, U.S. We're seeing it globally. So we're doing really well there. And health care is another great sector for us too. Lots of upgrades happening in the health care sector. Digital transformation continues to hit that sector as well, that vertical. And then what we're known for, which is the venue space, so sports, entertainment, venues, that's been doing really well. And part of it is also being driven by the Wi-Fi 7 refresh cycle. So a lot of those customers tend to be the wireless customers that we have, and we like it because it's also, you know, really sizable implementations. Last week, we had our annual user conference out in Orlando, and one of the things that we do in Florida is we have a lot of customers in Florida. We have the largest NCAA deployment of Wi-Fi 7 at the University of Florida Gator Stadium. And that stadium houses, I believe, 90,000 fans. So when we say that we're enterprise grade, like this is the level of scale that our solutions deliver, and we're very proud of that.

Ryan Koontz, Analyst — Needham

Yeah, that's really cool. I think you've got a lot of exposure internationally as to, which is a mix for a U.S. tech company. You've got a little over-index, I think, on the international front, don't you?

Stan Kovler, Head of Investor Relations

We do. We do a lot in Europe. So Germany specifically is a big market for us. the U.K. and continental Europe is really big. We're making really nice inroads in the Middle East. In the Middle East, we are deploying with some of our other technology partners the biggest casino in the Middle East, Al Marjan. And the construction got a little delayed. If you heard, there's a little bit of a conflict going on in the region. But since that ceasefire, I think it's been back on track. So good news on that front. It's just one customer, one property, but good news. And then just traveling east from there, going over to Asia, we're seeing some really nice success with countries like Japan. And it's also a public sector business that we're doing really well in. from a trend perspective, we're doing well there because we're seeing this notion of the sovereign cloud become a really interesting driver for networking. Even on the campus? Even on the campus. Countries want better security. They want their own data. They want to be able to control that. They want to run it in their own cloud infrastructure. And so we're seeing that as a deployment as well. So we can do public cloud infrastructure, and you can run all of your management there, private cloud, sovereign cloud, on-premise, and that's one of the value

Ryan Koontz, Analyst — Needham

propositions that we have is customer choice. Yeah, very cool. Let's shift to briefly discussing the quarter results a little bit. You guys just had some real strong results. Stock reacted nicely. Congratulations, but maybe can you walk us through some of your highlights you'd point out from the

Stan Kovler, Head of Investor Relations

quarter? Yeah. In the print? So we continue to experience double digit growth. 44 customers that last quarter spent over a million dollars with us. 29% growth in SaaS ARR. We're now $236 million of SaaS ARR. Deferred revenue continues to grow. And our margins got back on track. 62.3% gross margin that we were able to print. And one of the things is that we're very proud that our earnings growth is exceeding our revenue growth and showcasing that earnings leverage, operating leverage that we can deliver to Wall Street. Yeah, there were some concerns,

Ryan Koontz, Analyst — Needham

I think, about memory pricing, of course, throughout the whole industry, and you guys have managed right through that, I think, pretty well. Maybe walk us through some of the tools you guys use to get where you are now and maybe set up for the future on the supply chain side.

Stan Kovler, Head of Investor Relations

Yeah, so supply chain has been a big topic of discussion for the past several quarters. The industry is facing a transition and some tight supply, specifically in the memory market. So DRAM, DDR4 memory is in tight supply. And what we did was we spent several quarters shoring up our supply. and we were very happy to announce that we've essentially solved our memory needs for this year and going out to fiscal 27 and then some. And we have strategies in place, long-term supply agreements in place with certain partners and suppliers. And we've been using a combination of tactical ways to solve for this and also strategic. We're very appreciative of some of our marquee partners in the space like Broadcom. And if you think about how we solve for it, right, we have a solution that we sell, which could be an access point or a switch, and that has a lot of components in it. Some of our key components in there will be the microprocessor unit, and it'll be the memory unit. So those kind of go hand in hand. So we're aligned in that sense, right, where we want to solve for that supply. And we have some customers that we also do business with that are, in fact, DRAM suppliers themselves. That's helpful. So that's helpful. And the other thing that we did was we have an effort to redesign some of our products. Some of our products, for example, had multiple modules, and we redesigned them to have fewer modules. And that helps us expand our supply. And so, yeah, there's been a lot of things that we've done, both strategic and tactical, to really get to where we want to be. Our size is an advantage because if you think about our size relative to the industry leaders that are maybe, you know, 12 times bigger than we are, it's easier to solve for a container and not a container ship.

Ryan Koontz, Analyst — Needham

Yes, sir. And maybe on the guide, you know, your guide was also strong on the year. maybe walk us through some of your assumptions and what some of the highlights were on the guide, how you're feeling about the balance of this fiscal year and maybe looking at 27 a little bit.

Stan Kovler, Head of Investor Relations

Yeah, so we guided the full fiscal 26. We didn't really give guidance for 27. I think you and some of your fellow analysts are probably taking a look at what our long-term guidance is that we gave at our investor day in November and projecting that out. For 26, we're essentially calling for 12% growth on the top line with just a touch below 62% gross margin in the full year. So we're right on that 62% near-term target that we're on. And for EPS, just north of $1, about $1.03 in terms of midpoint for EPS for the full year. So that's where our trajectory is right now.

Ryan Koontz, Analyst — Needham

Yeah, and your TAM's not growing quite that fast, so that represents some share gains for you.

Stan Kovler, Head of Investor Relations

We do, yeah. So from an assumption standpoint, it looks like our TAM is growing 5% to 6%, and our growth this year will be 2x the TAM growth. And it's a combination of strong product growth, but also we talked about our SaaS ARR part of the business growing in that 20% to 30% range, and that's the big driver for the recurring part of our business. So that's been helping us as well outpace the market. We're seeing strong adoption of our agentic AI-based solutions.

Ryan Koontz, Analyst — Needham

Yeah, this new PlatformOne that you rolled out about a year ago, I guess, it started coming into beta, but starting to get momentum there. Can you maybe walk us through what it brings and how it's differentiated from your big competitors out there, PlatformOne?

Stan Kovler, Head of Investor Relations

It's interesting when you frame it that way. You were at the show last year where we launched it in Paris, And it went from beta to now not just first generation. Now we're in the second generation of agentic AI. And so we believe that we're getting ahead and leapfrogging our competitors in that sense because now what we're about to launch in July is the coworker version of Platform 1. And Coworker is more of a proactive solution that nudges along our users and helps them manage their network. It's giving them tips and hints and asking them if they would like certain changes to be made proactively to their network.

Ryan Koontz, Analyst — Needham

And then moving forward... As opposed to being, like, licensed to a piece of hardware, it's actually, like, receipt-basis type of deal?

Stan Kovler, Head of Investor Relations

So Coworker is still licensed to the hardware. And the benefit there is that, you know, you're essentially getting a productivity boost by using it, and you don't have to prompt it, right? So it tends to prompt you, and then it learns along with you. Where you are going is that later this year, at the tail end of this calendar year, we're launching the operator mode for Platform 1, where that will be a fully autonomous type of network operations deployment. And so, yes, it's cloud-based, and it allows people to just use that system as a way to manage our equipment, but it's licensed to the networking engineer. And it could be a networking engineer. Maybe in some cases, a marketing person will want it to get network insights, right? But it decouples the licensing of the one-to-one hardware license. to a person that could be running a different type of network and take advantage of that. In addition to that, it also comes with something that we called last week AI exchange. An AI exchange will allow people to build skills into it. And so for a lot of the tinkerers that want to build skills or we can drop agents into that, then people can take different agents or different skills that we've built up. It's like me, you know, sharing my Alexa skills with you, but at the enterprise level, right?

Ryan Koontz, Analyst — Needham

And where are you in terms of rollout here? I know you've continued to sell your traditional cloud-based management system, but now you're rolling out this other system. So you're kind of dual-threaded now and you're migrating folks over. Where are you in that kind of rollout?

Stan Kovler, Head of Investor Relations

For new customers, we're really driving people to platform one. And we call it Platform 1 because it combines two different things that we were offering. The older system, which is Extreme Cloud IQ, is a management system for managing the network. There's another offering that we have, which is technology support. So you call in customer service, next business day replacement of hardware, things like that. And all of that gets bundled now for new customers into Platform 1. So they have all of that under the same roof. The reason it's so important now is a lot of the tech support is essentially cost avoidance and call avoidance. So driving people to self-service tech support, that is part of what Platform One was designed to do, is that you can operate everything yourself and you don't need to have a lot of hand-holding. that becomes a big advantage for us because it means that it lowers the barrier to entry into networking and to learning our networking. And you don't necessarily have to be a Cisco certified engineer to do networking in Platform One anymore. Yeah. And how should investors think

Ryan Koontz, Analyst — Needham

about what Platform One brings to the income statement for results? You know, gross margin,

Stan Kovler, Head of Investor Relations

I assume. Nice boost there. Steady trend. In general, when we think about our subscription support line item, we've got about a 70% gross margin in that line item. So line item, that's what it's bringing. And a lot of our recurring revenue is going to be based on subscription support. So that 20 to 30% growth trajectory that I mentioned for the SaaS ARR is where investors should look for the proof points of that adoption curve. We also talked about Platform 1 for this year. Every single quarter, so we're in a June fiscal Q1, Q2, Q3, we've exceeded our booking expectations for Platform 1 in terms of customer adoption, and it's a combination of some new customers but also existing customers upgrading and they're essentially migrating their environment into Platform 1. So you talked earlier about the legacy software extreme cloud iq and we have the on-prem site engine extreme cloud iq people are upgrading into the new system in addition to new customers coming online

Ryan Koontz, Analyst — Needham

that's great uh i want to hit another real key differentiator for you too which is your your fabric and you know when i was at your customer conference last year um i was pretty amazed actually like you know these are folks that uh you know are big extreme fans and they love the fabric The network operations guys love the Fabric. Maybe walk us through why it's so loved.

Stan Kovler, Head of Investor Relations

Yeah, it's like we have a following, a better following than the Grateful Dead. And what people love about Campus Fabric is that it's the simplicity, automation, and productivity that it drives. Even before you start the AI conversation, at this user conference, we had some really cool customers, long-time customers like the Philadelphia Airports network engineering team, and have networking for that airport. He said, I can do everything that I need to do with four people. and while he was at our show they were adding a new airline um to their airport and obviously it's you know gates and it's a lot of provisioning that's taking in place and they were able to do it in you know less than an hour just plug and play this this fender so the power of it is is quite amazing and when people see it we have some new customers that just got a demo of it and um you You know, this was the famous quote that we like to talk about, is that customers that see it, you know, sometimes we had one customer that said that what I'm seeing here with platform one, right now it's taking, like, maybe it takes six minutes to do. If you were to do the same thing with Cisco, it would take them six hours. And then where we're going with platform one and all the autonomous capabilities and the agenda capabilities, that will go into six seconds. That's the power of the fabric. We had some research that we commissioned to determine what's the total cost of ownership benefit of our solution versus some of the leading solutions. And customers get a 32% better TCO deploying extreme. versus alternative solutions. A lot of that TCO is in the time spent by the engineers. So it's cost avoidance and it's productivity. The team can be doing something value-added and more planning and less troubleshooting, things like that.

Ryan Koontz, Analyst — Needham

That is great. Maybe circling back to supply channel, but you've secured the memory and key components you need. And, you know, can you walk us through, like, how you've been able to combat that with price in terms of your costs going up? And you're able to keep margins in, you know, in the range. Because that's a big problem for a lot of the hardware industry, the IT industry today.

Stan Kovler, Head of Investor Relations

That's correct. So we had to do two price increases so far to offset some of the higher costs that we're seeing. And, you know, networking is a mission-critical environment, right? So networking is a space where you need to make and keep up with those investments. And so, you know, we do pass those along. But now that we got the supply that we need with the purchase commitments and we understand the price that we will have to pay and we understand the volume that we're going to get. So we're able to plan better. And one of the things that we announced last week at the user event is that we're going to hold pricing in terms of our list prices through November 1 for customers. That'll alleviate a lot of the anxiety for customers. Some of our competitors, they're giving authorizations and then changing the price two weeks later or a month later. And it's difficult for the customers to plan. And so for us, we're trying to be more customer-centric in that sense. With their budgets. And with their budgets and their planning. And so giving them that predictability is going to be a very important element of how we go through the summer. And, you know, as others are hunting for supply, we feel like we can help our customers out in that sense.

Ryan Koontz, Analyst — Needham

That's great. And you've had some real success also with another initiative around MSPs. Can you maybe walk us through, you know, how that came to be? Obviously, that was, I think, a big Cisco stronghold historically. Walk us through what is an MSP and how you developed a solution to help these guys and beat Cisco at their own game.

Stan Kovler, Head of Investor Relations

Yeah, that's a great question. MSPs are important. So these are managed service providers. And think about them as like outsourcers of IT. Typically, the MSPs will service the market that is a little bit smaller in terms of size and scale of customers. So with certain partners and then a more like CapEx-oriented sale, we tend to sell, as we mentioned, to larger enterprises. And then MSPs allow us to go and address the mid-market or down-market. I don't want to say down-market, but smaller markets. And what they're doing is they're taking our software capabilities. So what we did was we gave them this platform, and instead of being just a one customer view within Platform One or previously Extreme Cloud IQ, we gave them something unique, which is multi-tenancy, and we gave them the ability to understand what the usage is so they could offer something unique to the customers, which is a usage-based model. If you think about that in an inflationary environment, in an environment where prices might be going up, giving people that ultimate flexibility about how they consume technology is really important. And so that's part of the reason why we're seeing the uptake. We have 70 signed up already. The billings numbers are going up, doubling year over year. And it's still a relatively small part of our business, but it's growing really well. And we see a lot of excitement there. Also, you know, it's good business because it's very sticky. Customers tend to stick with their managed service provider for a very long time. And in addition to just purely an MSP model like that for outsourcing, we can also offer customers flexibility with infrastructure as a service. And then, you know, that, again, offers them flexibility. A little different procurement model in that case? It's a different procurement model. And then we have another business model where we're essentially doing a disaggregated model. Again, all of these are points of flexibility that we have. And when costs are going up and prices are going up, a disaggregated model for a certain tier of large customers allows us to take advantage of recurring business that we can offer them, but then really give them a lot of cost savings on how they procure the underlying hardware. So that's another offering that we have for customers.

Ryan Koontz, Analyst — Needham

I think you want a big marquee customer there in John Deere? Fortune 500 win? And how has that business been going?

Stan Kovler, Head of Investor Relations

It's been going well. They've been deploying throughout their sites. And so, you know, this is what we enjoy with a lot of our customers is that once we get into a customer, that we tend to see expansion within that customer and growth of deployments within the customer base.

Ryan Koontz, Analyst — Needham

So how about on the competitive landscape? What do you see in here from the big guys from Cisco and HP? How are they behaving these days? And what's competitive intensity like these days?

Stan Kovler, Head of Investor Relations

We like the behavior because it's giving us a lot of opportunity. So that's what we like about it. There's a lot of installed base that's up for refresh in networking right now.

Ryan Koontz, Analyst — Needham

Cisco talks about the catalyst, refresh, and all that.

Stan Kovler, Head of Investor Relations

Yeah, and Cisco talks about their refresh cycle. And in many cases, because they're such a big market participant, it becomes the refresh cycle for the market. And we can participate in that as well. Customers are seeing a lot of refresh activity in the form of requests for proposal, proof of concept opportunities. And we're seeing that across the board, across a lot of our verticals. In addition, we're seeing a big opportunity with Cisco because they changed the nature of their partner program. So our industry uses what we call a two-tier distribution model. We sell it to distributors, distributors sell to partners, and the partners deploy. The partners, in some cases, they sell everything to a particular company. And that's what... More than just security. More than just networking, more than just security, right? And so those are the ones that they would like to do more business with. That means that the more pure play networking oriented companies would orient themselves more to companies like ours, because when they look at our business and what they can do purely in networking, in some cases, they're making 20% more working with us. With our model, right? So that's the huge advantage. And it's also a way for them to differentiate because you might have five or six different vendors that are bidding the same technology with Cisco and differentiating with price and what they can offer versus a completely differentiated sale with Campus Fabric, Agentic AI, and then you really come in and stand out that way as a partner.

Ryan Koontz, Analyst — Needham

Yeah, I think Cisco's really trying to consolidate too among those partners. Just reward the big guys. And if you don't make a certain level, you don't get the preferred treatment from that.

Stan Kovler, Head of Investor Relations

Yeah, so we can take advantage of, you know, what may be like the tier one billion dollar bar for us. You know, we'll take the 50 to 100 million, the 20 million, you know. So we can partner with those folks as well and really give them the level of maybe higher touch and level of care that they deserve and offer that too.

Ryan Koontz, Analyst — Needham

Yeah. How about HP, Juniper Combo? What's that been like competitively for you?

Stan Kovler, Head of Investor Relations

Well, yeah, so that combination has been interesting because there are a lot of decisions that have to be made on the roadmap that are seemingly static, right? So we're seeing a lot of customers that are opting to look at opening up their environments, and they may have been purchasing one or the other for a long time. But because they might have to switch over or now add the other half of the company to their portfolio, they still have to do a request for proposal. So think about regulated industries like in the state, local education or public sector space. You have to buy a certain class of products and a certain price list. And now you might have to qualify a completely new price set from the vendor, and they still have to open things up and qualify new vendors. So the opportunities for us are out there, and that's what's helping drive our funnel. Seeing a lot of at-bats then.

Ryan Koontz, Analyst — Needham

Yeah, we're seeing a lot more at-bats. That is great. And there was a recent transaction on the M&A side. We finally saw a ruckus get sold for like the 50th time with somebody. But, you know, pretty big takeout price. I think 13 times EBITDA for Ruckus, which you could probably argue is not a top-tier asset, the way it's been moving around. Your thoughts on that?

Stan Kovler, Head of Investor Relations

I hope that reflects positively on our valuation, right? It's the tide that lifts all boats. So we take that positively. You know, we're happy that they didn't go with a more direct competitor in terms of where they landed, and we wish them well. But there's going to be a lot of opportunity that I feel comes our way because, again, it's M&A, it's disruption. And so we're staying the course, focusing on organic development, organic growth, and just driving home. We have one platform, universal platform for hardware. we have our platform one for all of our management software and so it's a very simple story with limited transitions or disruptions and so that we feel like is a great value proposition these days where seemingly almost every vendor is either in some kind of change mode M&A portfolio rationalization right converging product lines like Cisco's had two product lines for a decade they're finally converging that creates a lot of disruption and we feel like we're offering stability and innovation to our customers yeah it's great great focus we've just a couple minutes left anybody in the audience have any questions

Ryan Koontz, Analyst — Needham

they'd like to lob in to us Stan well just wrapping up here you how are you thinking about your you know your path forward and and your work with this with the sales team in terms of what's what's got sales team excited here in 26 the

Stan Kovler, Head of Investor Relations

sales team in 26 and going into our fiscal 27, they're going to be very excited about what we have to bring with platform one. And they are incentivized to sell it. They're incentivized to grow. They're incentivized to make sure that we get our money's worth on that valuable DRAM that we secured. We want to make sure we monetize that at the product level. And I think they're excited because we can finally take advantage and second generation of this new platform that we have head and shoulders above with some of our competitors are offering so I think people are really excited about the opportunities forward across the board yeah that's really great well thanks

Ryan Koontz, Analyst — Needham

for joining thanks thanks everyone for joining today thank you