Extreme Networks 2026 Q4 Earnings Call

Good morning, and welcome to Extreme Networks' fourth quarter and fiscal year 2026 earnings conference call. I'm Stan Kovler, Senior Vice President of Finance and Corporate Development. With me today are Extreme Networks President and CEO, Ed Meyercord, and Executive Vice President and CFO, Kevin Rhodes. We just distributed a press release and filed an 8-K detailing Extreme Networks' financial results for the fourth quarter and full fiscal year 2026. A copy of the press release, which includes our GAAP and non-GAAP reconciliations and our earnings presentation, is available in the IR section at extremenetworks.com. Today's call and Q&A may include certain forward-looking statements based on current expectations about Extreme's future financial and operational results, growth expectations, new product introductions, supply chain dynamics, and management strategies. All financial disclosures made on this call will be 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 our 10-K and 10-Q filings. Any forward-looking statements made on this call reflect our analysis as of today, we have no plans to update them except as required by law. Following our prepared remarks, we will take questions. Now I will turn the call over to Extreme's President and CEO, Ed Meyercord.

Thank you, Stan, and thank you all for joining us this morning. In fiscal 2026, we delivered 13% year-over-year revenue growth and 26% EPS growth, highlighting competitive strength and the operating leverage in our model. During the year, we took share and accelerated our move upmarket by winning more sophisticated networking projects with larger customers, Q4 was our sixth consecutive quarter of double-digit growth. Our performance was driven by the convergence of three factors. First, our highly differentiated portfolio, including Platform One, Extreme Fabric, Wi-Fi 7, and the industry's first multi-beam wireless solution. Our innovation is driving competitive wins and opening doors to new customers. Second, we're well-positioned in a market that's rapidly moving away from point solutions toward integrated platforms. Our go-to-market teams are tightly aligned capitalizing on the opportunity to take share here.

Third, operating excellence and disciplined execution, highlighted by our supply chain team eliminating product constraints and by allowing us to meet customer demand into fiscal 2028 and beyond. Enterprise networking is in an extended growth cycle fueled by new demands on network created by AI, security, and the modernization of enterprise IT. At the same time, competitor refresh cycles are creating a significant multi-year window for us to take share, win new customers, and deepen existing relationships. Fiscal 2026 highlighted a significant move upmarket, with 187 customers booking more than $1 million in business with Extreme. Our average deal size grew by a third and our enterprise competitive win rate improved significantly. We just completed nine consecutive quarters of product growth driven by innovation. Our unique Extreme Fabric remains one of our strongest differentiators.

One customer recently told us they've gone 11 years without a single network outage since deploying Extreme Fabric. By automating operations, strengthening security, and simplifying management, Extreme Fabric delivers results customers can see, and when they experience it in a proof of concept, our win rate goes way up. Now our Extreme Fabric with enhanced capabilities is built into Extreme Platform ONE. Extreme Platform ONE accounted for 30% of subscription bookings in the first year of general availability, and nearly half of subscription bookings in the fourth quarter, underscoring the rapid pace customer adoption for a unified AI-powered networking platform. Customers and partners are interested in Extreme because they want the most advanced networking platforms that leverage modern agentic AI technology. The release of our Extreme Agent ONE Coworker this quarter is highly anticipated. Deployment flexibility. No competitor matches Extreme's cloud flexibility, whether it's public, private, or on-prem.

We offer seamless alternatives without compromising performance, control, or compliance. That differentiation brings unique data sovereignty protection, driving strong public sector demand. During the quarter, Extreme Platform ONE achieved Germany's C5 certification, one of Europe's most rigorous cloud sovereignty standards. In the quarter, we extended our innovation leadership with the industry's first multi-beam wireless solution with Wi-Fi 7. This is a result of an exclusive partnership with MatSing. By delivering significantly better economics, greater coverage, and capacity with dramatically less infrastructure, the solution helped us win the massive and highly contested Tennessee Titans new Nissan Stadium project. It demonstrates how differentiated innovation continues to drive competitive wins.

Extreme Platform ONE continues to accelerate with customers across all geos and all industry verticals, including a top 10 global retailer based in Europe, University of Technology Sydney, a new logo in our largest deal in the ANZ region in company history, Vandalia Health, the largest healthcare provider in West Virginia, the UK Health Security Agency, Assumption University, Penn State Athletics, and many more. We also signed our first multi-million dollar, multi-year enterprise agreement for Extreme Platform ONE with one of the Middle East's largest healthcare providers. In other competitive wins, Extreme displaced Cisco at Nottingham City Council, the U.K. government authority that delivers a broad range of public services to more than 320,000 residents. The new network will include a unified fabric, SD-WAN, and our cloud-managed networking solution spanning 74 sites.

Elisabeth-TweeSteden, one of the largest hospitals in Netherlands, expanded its partnership with Extreme, selecting Platform One and wired and wireless solutions to support a major modernization initiative. Extreme Fabric was a key differentiator helping us displace Cisco with the simplicity and resiliency required for a 24/7 healthcare environment. Brunel University London with over 16,000 students was another new logo win. We displaced a 20-year incumbent by combining the differentiated value of our campus fabric with Platform One. University of Florida selected Extreme to deploy the first Wi-Fi 7 network in a collegiate athletic venue, the iconic Ben Hill Griffin Stadium, better known as The Swamp. Our MSP program continued to gain traction, closing the year with 74 active MSPs, up from 70 last quarter. Billings grew 16% quarter-over-quarter and 112% year-over-year.

All MSPs are now running Platform One for MSP Workspace, with upgrades now a key focus on our differentiated multi-tenant architecture. The strength of our business momentum has carried into the new fiscal year. Market trends are favorable for Extreme, and we intend to continue outpacing market growth by taking share, migrating new and existing customers onto Platform One. Our component supply is secured into fiscal 2028 and beyond, allowing us to meet customer demand while maintaining solid gross margins. Our channel partners continue to report that competitors' lead times are extending due to ongoing supply constraints, creating tailwinds for us.

With the next generation of Platform One and the upcoming release of both Agent ONE in Coworker mode this quarter and in Operator mode next quarter, we will bring agentic AI across the entire network lifecycle, from design to orchestration, troubleshooting, and remediation across our entire product portfolio while delivering complete observability, auditability, and autonomy with built-in governance. None of our competitors will be able to say this or have this capability for some time, and it will be on display at our AI summit in Amsterdam in October. Finally, the benefits of our continued growth will show up in our operating leverage as we expect our earnings to grow in the 20-plus % range, more than doubling our top-line growth as we go forward. Let me turn the call over to Kevin to discuss financial results and guidance.

Thanks, Ed. In the fourth quarter, total revenue of $339 million exceeded consensus and the high end of our guidance range, representing 10% year-over-year and 7% sequential growth. This is our ninth consecutive quarter of sequential product revenue growth. Demand remained strong, resulting in 14% year-over-year and 10% sequential growth. Our recurring revenue of $116 million grew 6% year-over-year. We were pleased with the continued increase in our gross margins to 62.7%, which exceeded consensus and was above the high end of our guidance range. This was the result of timely pricing actions and effective cost management of our supply chain components, which led to a 40-basis point improvement in product margins. Earnings per share of $0.32 was up 28% year-over-year and 23% sequentially and exceeded consensus in the high end of our guidance range with some tax favorability included.

I'm pleased to report that we have secured our supply chain for the long term, including into fiscal 2028. Our broad product availability enables us to meet the needs of prospects and our customers at a time when product lead times are a concern for many of our competitors. SaaS ARR climbed to $244 million in the quarter, growing 18% year over year. Investors may recall last year in the fourth quarter, we grew 24% year over year due to winning large customers such as John Deere and the Japanese government. We expect SaaS ARR growth to re-accelerate towards the mid-20% range at the end of this fiscal year. Wi-Fi 7 continues to drive our wireless product revenue. Over half of our wireless bookings and revenue now comes from Wi-Fi 7.

The upgrade cycle is also creating a positive mix shift in average selling prices further supports our gross margin outlook. Geographically, our bookings revenue tend to fluctuate based on the seasonality of our business. This quarter, the Americas region exhibited strong performance driven by continued bookings growth over the past two quarters. We also generated major competitive wins in EMEA and APAC, including some of the largest universities, hospitals, and retailers in their respective geographies. We expect all regions to grow in fiscal 2027. Operating margin in the fourth quarter was 15.7%, up 50 basis points from 15.2% in the prior year quarter. We had a really strong finish to the year, winning large deals exceeding our goals for Platform One, which drove higher incentive compensation expense.