Preliminary 1FQ21 Results and Post-Earnings CEO Fireside Chat



KEY POINTS
  • Extreme Networks is widely viewed as being well positioned for the growth of government, education and 5G drivers to fuel incremental demand for its cloud-based systems.
  • Cloud-based management solutions are expected to continue taking market share in both hardware and networking markets. The centralized data allows for better predictions and operations, and the cloud makes it cost effective.
  • Global internet penetration has grown from 25% in 2010 to 62% in 2020 (by Internet World Stats) and is projected to grow to 90% by 2030 (by Cybersecurity Ventures). However, consensus projections are for 1% growth in industry revenues the next three years, down from a +5% CAGR the last decade.
  • Networking market share changes tend to take time as multi-vendor customers are rare. Taking share from Cisco, Arista, and Juniper will be difficult, thus Extreme’s strategy to focus on cloud-driven differentiation in markets where it has a significant presence is the best approach in management’s opinion.
  • The company is moving to a universal hardware platform for its products. The first will be its 5520 high-performance switches, which are due to ship to customers in mid-November. Over the next 14 months the company expects to have roughly 70% of its SKUs (ex-enterprise) on the new universal platform. The company expects the universal platform to help keep its gross margin above 60%, as product gross margin for the universal platform is expected to be higher than what it replaces.
  • Read our initiation report HERE.

WHAT HAPPENED?

For the September quarter the consensus non-GAAP EPS estimate was $0.06, which the company beat by $0.03 coming in at $0.09/share. Revenue was $236mn, above consensus expectations of $233mn. Non‑GAAP operating margin was 8.3%, up 210 bps from a year ago and up 310 bps sequentially. Guidance for F2Q21 was above consensus for both revenue and EPS.

In our 10/30/20 fireside chat with President and CEO Ed Meyercord, he highlighted that the just reported September quarter saw sequential revenue growth of 9% and non‑GAAP gross margin exceeding 60%. Ed also discussed a state-of-the-art product for 5G that is due in the March quarter that could provide “significant growth in F22.” He believes that the company has not been in this strong of a position in the last 10 years.

Register HERE to see the full interview.

Extreme Networks is widely viewed as being well positioned for the growth of government, education and 5G drivers to fuel incremental demand for its cloud-based systems.

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