Preliminary F2Q21 Results, But Over a Range



KEY POINTS
  • Extreme described its quarter as “very solid,” with revenue at the mid-point of $243 million, which was above the mid-point of guidance of $240 million and consensus at $241 million. Mid-point non-GAAP EPS was $0.14 also above consensus of $0.11. Non-GAAP gross margin came in above 60% with a range of 60.7% to 62.1%, with a midpoint of 61.4%.
  • The company reported a range of revenue, gross margin, and earnings because it “identified a potential adjustment to its distributor rebate estimate, which may result in a non-recurring increase to contra revenue in our financial statements.” Its press release also said that “this would have no impact on our reported cash balance or business outlook.” Off-line we learned that the company does not expect any other quarters to be impacted. The company expects the review to file its completed financials on time, which is February 9, 2021.
  • The stock is trading at a forward P/S of 1.07, slightly above its two-year high P/S of 1.05x back in August 2019. The company said it sees a “massive 5G opportunity,” and it expects double-digit, year-over-year revenue growth, record gross margins, and double-digit operating margins in 2HF21.
  • The move to its universal hardware platform, which we discussed in prior reports, is progressing with its next family of switches to make the change in C3Q20. The company expects some, but limited, benefit to gross margin because of the universal hardware platform, saying it would likely be in the “tens of basis points” range.
  • Read our initiation and other reports on Extreme Networks on our website.

OUR INSIGHTS

The company looks to be making progress on sales growth as the new head of sales is now fully engaged and the company is expecting sequential revenue growth rather than the normal seasonal decline.

The 5G opportunity for Extreme is $50 million to $100 million in annual sales for up to 15 years, according to the company. The company already has one 5G product in the field, and a second one being designed into a 5G system. They expect to see growth begin to ramp in 2HF21. Management also cited their cloud management from end-to-end as a major differentiator for them, particularly for enterprises.

The company guided to F3Q21 revenue of $240 million to $250 million, which they said was better than normal seasonality, and it is above previous consensus of $233 million. The company expects non-GAAP EPS in the range of $0.11 to $0.16, 80% above previous consensus of $0.075 at the midpoint.

Extreme described its quarter as “very solid,” with revenue at the mid-point of $243 million, which was above the mid-point of guidance of $240 million and consensus at $241 million. Mid-point non-GAAP EPS was $0.14 also above consensus of $0.11. Non-GAAP gross margin came in above 60% with a range of 60.7% to 62.1%, with a midpoint of 61.4%.

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