Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net new logo bookings grew double digits globally, showing strong performance especially in the US market.
- SaaS Annual Recurring Revenue (ARR) increased by 38% year-over-year, highlighting successful growth in cloud-based solutions.
- Successfully reduced channel inventory at the high end of the projected $40 to $50 million range, aligning closer to channel normalization.
- Anticipated meaningful sequential revenue growth moving into the fiscal fourth quarter, driven by solid bookings and a healthy funnel of opportunities.
- Hosted a highly successful annual Connect user conference, which was oversubscribed and demonstrated significant growth in customer engagement and interest in new products.
Negative Points
- Continued industry-wide customer and channel digestion creating a drag on normalized bookings and revenue, indicating ongoing market challenges.
- Revenue of $211 million declined sequentially during the quarter, primarily due to market dynamics affecting the industry.
- Gross margin decreased to 57.6%, down significantly from previous quarters, impacted by reduced product revenue and excess raw material costs.
- Operating expenses in the third quarter increased to $147 million, up 3% from the year-ago quarter, indicating rising costs.
- Reported a non-GAAP loss per share of $0.19 for the third quarter, reflecting challenges in achieving profitability under current market conditions.
Q & A Highlights
Q: Can you discuss the normalized revenue base for Extreme Networks and the company's long-term sustainable growth rate?
A: (Ed Meyercord - President and CEO) We see potential for growth to about $300 million per quarter in revenue from where we are today. The market conditions and competitive landscape disruptions are expected to create more opportunities for us. We aim to leverage these opportunities to drive growth, especially as we continue to enhance our software offerings with added security and AI capabilities.
Q: What are your expectations for operating expenses in Q4 following the mid-quarter actions in Q3?
A: (Kevin Rhodes - CFO) We expect operating expenses in Q4 to be around $133 million. The reduction efforts were comprehensive, covering sales, marketing, and other operational areas to optimize our expense structure in alignment with expected revenue levels.
Q: What drove the double-digit growth in new logos despite the challenging macro environment?
A: (Ed Meyercord - President and CEO) The growth was driven by significant new wins, including large deals and the addition of prestigious clients like Washington University in St. Louis. These wins demonstrate our competitive strength and the increasing market recognition of our value proposition.
Q: How should we expect inventory levels to normalize in relation to product revenue, and what is the anticipated impact on cash flow?
A: (Kevin Rhodes - CFO) We aim to reduce inventory levels to about $90 million, aligning with around 10% of our annual product revenue. This reduction is expected to generate positive cash flow over the next year as we sell through the inventory that was purchased based on prior commitments.
Q: Can you provide insights into the seasonality impacts for fiscal Q1 2025 and how they might differ from typical patterns?
A: (Ed Meyercord - President and CEO) Given the current unusual market conditions, traditional seasonality may not apply. We are cautiously optimistic but recognize that the market needs more time to stabilize. We expect to see clearer signs of recovery and return to normalcy towards the end of the year.
Q: What are the expectations for the operating expense run rate moving forward, and how does it support the company's growth targets?
A: (Kevin Rhodes - CFO) The current operating expense run rate set for Q4 is expected to be indicative of near-term expectations. However, future adjustments may occur based on merit increases and other factors. This level of expenditure is designed to support our recovery and growth towards a $1.2 billion annual revenue target.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
