Extreme Networks Inc (EXTR) 2016 Q3 法說會逐字稿

Good afternoon and welcome to the Extreme Networks third quarter fiscal 2016 earnings results conference call. This call is being recorded. With us today from the Company is Ed Meyercord, the President and Chief Executive Officer; Ken Arola, the Chief Financial Officer; and Frank Yoshino, the Vice President of Treasury and Investor Relations. At this time, I would like to turn the call over to Frank. Please go ahead, sir.

Thank you, Crystal. And welcome to Extreme Networks third quarter fiscal year 2016 earnings conference call. This conference call is being broadcast live over the internet and is being recorded on behalf of the Company. Should you wish to not be recorded, please do not ask questions during the Q&A. The recording will be posted on Extreme Networks' website for replay shortly after the conclusion of the call. The presentations and the recording of the call are copyrighted property of the Company and no other recording or reproduction is permitted unless authorized by the Company in writing.

By now, you have had a chance to review the Company's earnings press release. For your convenience, a copy of the press release and supporting financial materials are available on the Investor Relations section of the Company's website at ExtremeNetworks.com.

I would like to remind you that during today's call management will be making forward-looking statements within the meaning of the Safe Harbor provision of the federal securities laws regarding business and financial outlook. These forward-looking statements involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update these statements after the call. For a detailed description of these risks and uncertainties please refer to our most recent reports on Form 10-K, Form 10-Q, and Form 8-K filed with the SEC, in addition to our earnings release posted a few minutes ago on our website.

Throughout the conference call, the Company will reference some financial metrics that are derived in accordance with generally accepted accounting principles, or GAAP, while other metrics are not in accordance with GAAP. This approach is consistent with how management measures the Company's results internally. However, our non-GAAP results may not be comparable to non-GAAP information provided by other companies.

Non-GAAP information should be considered a supplement to and not a substitute for financial statements prepared in accordance with GAAP. Reconciliation of the non-GAAP information to corresponding GAAP measures is in our earnings press release issued today, as well as in the Investor Relations section of our website. In preparing non-GAAP information the Company has excluded, where applicable, the impact of the acquisition and integration costs, purchase accounting adjustments, amortization of acquired intangibles, restructuring charges, overhead adjustments, litigation expenses, executive transition expenses and share-based compensation.

Now, I will turn over the call to Extreme's President and CEO, Ed Meyercord, for some opening comments.

Thank you, Frank, and good afternoon. We appreciate you joining our earnings call today.

I'm pleased to report solid results, which came in towards the high end of our guidance for the fourth quarter in a row. Our results were highlighted by organic year-over-year growth, significantly improved profitability, and a strengthened balance sheet.

Despite the challenges highlighted by competitors in the enterprise market, we are bullish on the growth opportunity to deliver wireless and wired software-driven networking solutions to our targeted enterprise customers around the world. And with Brocade's acquisition of Ruckus announced this quarter, we have yet another validation point of our strategy in acquiring Enterasys and expanding our product portfolio to include wireless with management, access control, and analytics software; the foundation of our solutions strategy.

Our ideal customer profile has a campus to 200 to 1,000 employees and revenue of $150 million to $1 billion. Additionally, our target campus customers manage very transient environments; students in universities, clinicians in hospitals. They have unique security requirements; open, high availability, with identity and access controls. And they manage with a limited or constrained IT staff.

We believe we are more focused now than any of our competitors on this target market. Our focus and our strength in enterprise campus solutions give us confidence in our ability to take market share. We are forecasting revenue growth in calendar 2016 and our fiscal 2017.

Progress is evident in our strategic initiatives to build five vertical enterprise go-to-market channels and to market our innovative technology solutions to those five verticals; our education, healthcare, manufacturing, government, and hospitality/public venue customers. At the same time, we continue to improve our tactical execution across all functional areas of the business and see improvements every quarter.

From a macro level, our industry sources, which include IDC, Dell'Oro, and Gartner, project 1% growth in wired campus networking solutions. While traditional wired networking in the enterprise data center market is flat, there are two underlying trends. There's a large declining legacy market for switching infrastructure being offset by a high-teens growth in the emerging market for campus private cloud.

Even though we made a decision not to invest in developing high-end data center and hyperscale cloud solutions, Extreme's switching portfolio is very competitive in these emerging campus hybrid and private cloud environments where enterprise data centers typically have 1,000 servers or less. The wireless segment of our target market is growing at approximately 6% and we expect the adoption of Wave 2 technology and Wi-Fi network upgrades to drive high-single-digit growth over the next several years. When we add software to the mix, growing at double-digit rates, this gives us a total addressable market of $11 billion for enterprise end-to-end wired and wireless networking solutions, growing at a 2%, plus or minus, clip. When we zero in our target verticals, we estimate our target addressable market to be just over $8 billion.

We have tangible evidence of our progress in solutions selling. A year ago, less than 30% of our account executives had sold wireless. As of today, 100% of our AEs have sold wireless and over half have sold wireless deals in excess of $100,000.

As it relates to our software, our suite of management, identity and access control, and analytics tools, what we call ExtremeManagement, ExtremeControl, and ExtremeAnalytics, allow us to deliver unique solutions for our enterprise customers and pull through wireless and wired hardware sales. When we sell solutions, we have a much larger ASP and higher gross margins. ASPs tend to be three times to five times larger and gross margins are typically 10 points higher.

Here are a couple recent examples of our success in solutions selling. When we learned that a CIO from a large hospital in our target healthcare vertical was struggling to quickly identify pumps needed in the operating room for heart transplant procedures, it changed the dialogue from simply discussing hardware features to a full evaluation of the benefits of a total solution. Our ExtremeManagement family of software with access control and analytics make it easy to solve these kinds of issues. Since our Extreme software portfolio is multi-vendor, it also makes it easy for us to open the door for a proof of concept and ultimately a larger sale. This is our land-and-expand strategy by leading with software.

Another example is a school district that wanted to ensure sufficient bandwidth to students taking standardized tests online from select classrooms. When they learned that Extreme can, with high confidence, provide quality-of-service levels in required bandwidth at the right times in the right classrooms with our application controls and our analytics, we were able to win the purchase order for wireless and wired access layer and infrastructure switching as well. We also have features where teachers can turn on and off QOS levels from a webpage for test times or shutting down access altogether to block access during a lecture. This is Extreme's SDN in action.

Turning to the third quarter results, our non-GAAP revenue came in at $125.3 million. That's $2 million above the midpoint of our guidance range. This represents organic growth of 4%. This is the first quarter of organic growth for the Company since our quarter ended June of 2011. That's almost five years.

Our top-line growth was driven by solutions selling and the strength of our education and hospitality/public venue customers in North America. This year, we've already grown the volume of solutions sales by more than 3X from last year with sales to existing and new companies.

In the EMEA region, where we have our highest gross margins, we put up a solid quarter led by growth in Germany. We're rebuilding our APAC team and expect them to rebound in Q4 and fiscal 2017 with significant opportunities in China and India. We are rebuilding LatAm as well. Despite macroeconomic issues there, our new team is poised for growth with many new partner and customer opportunities coming into our pipeline.

Here are some sample wins in our five target vertical enterprise markets during the quarter. In education, we received a large order from Columbia County Board of Education and beat out Cisco there. We also won the College of Southern Maryland, a full solutions customer, and beat out Brocade.

In healthcare, we won an upgrade for the Charlotte Area Medical Center. They're using our Wave 2 APs and our ExtremeManagement software to guarantee quality of service in delivering critical voice over Wi-Fi. We also won Luton & Dunstable Hospital. This adds another National Health System Trust hospital in the UK, where we have over 20% market share in healthcare.

In government, we won deals with the Federal Statistics Department in Germany and the ASA, a government-owned airport operator in Mexico.

In manufacturing, we landed the Volkswagen plant in Russia, Tata motors in India, and Samsung electronics in South Korea.

In hospitality/public venue, we won the network refresh contract for the New England Patriots. We expanded into the NHL with the Buffalo Sabres. We expanded into Major League Baseball and we won the Chicago Cubs.

By concentrating our initiatives in these five verticals, our goal is to continue to build on our prior success and make it easier for our sales teams and our partners to compete and win business. We are encouraged by early signs of success as highlighted by these examples and these target enterprise customers value our high-touch technical support. With our 100% in-sourced technical assistance center, 94% of issue resolution with first response tech support, and our online user community, existing customers become our best reference accounts.

Going back to our performance, our gross margins for the quarter were 80 basis points higher than the same period last year on a non-GAAP basis, but came in at the low end of our guidance range. During the quarter, our team did an excellent job of moving out older products from inventory, which had a temporary effect on gross margins in the quarter. We expect gross margin expansion in future quarters.

From an operating expense perspective, you can see our significantly strengthened financial position and the benefits of our cost-cutting measures, with expenses down over $7 million from Q3 of fiscal 2015.

When you look at the year-over-year comparisons, the growth in revenue, higher gross margins, and lower operating expense, our non-GAAP operating income is up $11 million and our non-GAAP earnings per share grew to $0.03 per share from a loss of $0.08 per share last year. This is higher than analyst consensus by $0.01 a share.

Turning to our recent and upcoming product and software releases, our technology investment and product roadmap are focused on our target enterprise customers and aligned with our global sales organization. At the end of last year, we announced the launch of our new Wave 2 APs and our ExtremeCloud management platform. They are the first flow-based Wave 2 APs in the market and support three times the number of devices at twice the speed with much higher reliability. With our CoreFlow technology, we have unique visibility into network applications and application performance from the access point edge.

ExtremeCloud provides zero-touch provisioning, which significantly increases the speed and simplicity of enterprise-grade Wi-Fi deployment. Our official launch announcement for our new ExtremeCloud 3.0 is coming next week at Interop and we'll highlight zero-touch provisioning for our access layer switches as well. We'll be the first in the industry to offer cloud-managed APs and access switches with a subscription payment model.

Another recent product announcement features our access edge switches that have been well-received by our enterprise customers. We've built a big pipeline for the 440-G2, a cost-effective campus edge switch with multiRAE ports from 1 gig to 10 gig. The X620 is part of our family of 10 gigabit Ethernet edge switches with lower port density. The X620 family will support 2.5 gig and 5 gig port speeds, targeted targeted in September for Wave 2 Wi-Fi deployments.

Finally, our ExtremeManagement 7.0 software release will become generally available this quarter and has a new user interface that is intuitive and easy to use with over 140 feature enhancements in this release.

At Extreme, we're driving more and more focus on delivering new solutions to our targeted enterprise customers. In a world of increasing network complexity given the explosion of mobile devices, and the need for security, high availability, and quality-of-service requirements for applications, Extreme is well-prepared to address our enterprise customer needs.

We're highly-focused on growth, pursuing a go-to-market strategy where Extreme has demonstrated success in the past, with strong reference accounts. Our solutions selling strategy is working with a higher percentage of sales including our software. We have the highest level of customer satisfaction. We're introducing highly-competitive solutions that address customers' key requirements and future trends. And all of this is translating into growth and improved financial performance, which we believe will continue to gain momentum in the future.

Now, let me turn it over to Ken for numbers.

Thanks, Ed. Before I get to the numbers, I'd like to take a moment to make a few high-level comments on our financial performance, in particular the leverage we are seeing in the P&L and the strengthening of the balance sheet.

On a year-over-year basis, we delivered 4% revenue growth in quarter 3 and through continued diligent management of our expenses we delivered Q3 non-GAAP operating income of $5.4 million compared to a loss of $5.6 million in Q3 a year ago, an $11 million improvement year over year.

Looking at year-to-date results, we generated non-GAAP operating income of $23.7 million and EBITDA of $33.1 million in FY16 compared to operating income of $2.3 million and EBITDA of $11.6 million in FY15. Significant improvements in operating leverage.

From the beginning of fiscal 2016 we have seen marked improvement in the balance sheet with strong collection efforts contributing to growing cash by $12.1 million, driving accounts receivable down $30 million, with DSOs decreasing to 46 days. We have reduced our inventories by $5.3 million and expect to drive further reductions by the end of fiscal 2016. And we've reduced our debt by $8 million.

I refer you to a more detailed chart depicting these improvements on the IR website deck. To sum it up, we are very pleased with our performance over the past four quarters.

Now, let's review the third quarter results starting with revenue. Q3 GAAP revenue was $124.9 million compared to $139.3 million in quarter 2 and $119.6 million in Q3 a year ago. Q3 non-GAAP revenue was $125.3 million compared to $139.7 million in quarter 2 and $120.4 million in Q3 of last year.

As mentioned, the U.S. saw strong growth year over year driven by our education and hospitality/public venue customers. The geographic split of revenues were as follows. North America contributed 52% to total revenue. EMEA contributed 35%. APAC contributed 9%. And Latin America contributed 4%.

Product revenue, both GAAP and non-GAAP, for quarter 3 was $92.7 million compared to $105.4 million in quarter 2 and $86.5 million in Q3 of last year. Year over year, product revenue grew 7.2%. Q3 GAAP service revenue was $32.2 million compared to $34 million in Q2 and $33.1 million in Q3 of last year. Non-GAAP service revenue for Q3 was $32.6 million compared to $34.3 million in quarter 2 and $33.9 million in Q3 of last year.

Moving on to gross margin and operating expenses. In Q3, GAAP gross margin was 50.2% compared to 50.4% in quarter 2 and 48.3% in Q3 of last year. Non-GAAP gross margin was 53.4% and compares to 53.6% in quarter 2 and 52.6% in Q3 of last year. As we have previously mentioned, the March quarter is a seasonally-slower revenue quarter, which historically has had an impact on gross margins given our relatively fixed manufacturing and service cost structure. In addition, we were successful in moving older products from inventory at lower price points, which had a temporary effect on gross margin in the quarter. With seasonally-strong revenues in Q4 combined with our focus on inventory management, we expect gross margins to improve, which is reflected in our Q4 guidance.

Q3 GAAP operating expenses were $71.6 million compared to $75.6 million in quarter 2 and $79 million in Q3 of last year. In addition to the ongoing amortization of intangibles and stock-based compensation charges, Q3 GAAP operating expense includes restructuring charges of $1.4 million related predominantly to our facilities consolidation following the reduction in workforce in Q4 2015 plus executive transition charges of $1.4 million.

Q3 non-GAAP operating expenses were $61.6 million and compares to $64.1 million in quarter 2 and $68.9 million in Q3 of 2015. The sequential decrease in non-GAAP operating expenses was mainly attributable to R&D spend coming in below expectations on several projects and lower compensation-related expenses.

Third quarter GAAP operating loss was $8.9 million or negative 7.1% compared to a loss of $5.4 million or negative 3.8% in Q2 and a loss of $21.3 million or 17.8% in Q3 of last year. Third quarter non-GAAP operating income was $5.4 million or 4.3% compared to $10.8 million or 7.8% in Q2 and an operating loss of $5.6 million or negative 4.7% in Q3 of last year.

GAAP net loss for Q3 was $10.8 million or negative $0.10 per share compared to a net loss of $7.2 million or negative $0.07 per share in quarter 2 and a net loss of $23.5 million or negative $0.24 per share in Q3 of last year. Non-GAAP net income for the quarter was $3.5 million or $0.03 per diluted share and compares to a net income of $9 million or $0.09 per diluted share in Q2 and a net loss of $7.9 million or negative $0.08 per share in Q3 2015.

Turning to our balance sheet, Q3 cash and cash equivalents benefitted from strong collections and we ended the quarter at $88.3 million, up $2.5 million from last quarter and up $12.1 million from fiscal Q4 2015. In the quarter, cash flow from operations was $4.9 million compared to $7.4 million in quarter 2 and a negative $7.9 million in Q3 of last year. Free cash flow was $3.6 million compared to $6.7 million in Q2 and a negative $9.5 million in Q3 of last year.

Accounts receivable were $62.7 million at the end of Q3, down $10.4 million from last quarter and down $30.1 million from Q4 2015. DSOs decreased to 46 days this quarter from 48 days in Q2 and 56 days in Q4 of 2015. Inventory ended at $52.8 million, down $3.8 million from last quarter and $5.3 million from Q4 2015 and down $14.1 million from Q3 of last year. As mentioned, we expect to further reduce inventories by the end of fiscal 2016.

Total debt outstanding at the end of Q3 was $58.8 million compared to $66.9 million in Q4 2015. And we were in compliance with all bank debt covenants at the end of the quarter.

Now, let's move on to guidance for quarter 4. As already mentioned, our view takes into consideration that Q4 is typically a seasonally-stronger revenue quarter than Q3. And the 2016 e-rate submission deadline has been extended to the end of May, making it likely that the first time we'll receive orders will be the first quarter of our fiscal 2017. Also, keep in mind that last year's Q4 revenue of $150.6 million included an unexpected $7.3 million e-rate order right at the end of the quarter from a single school district, one of the largest orders in the Company's history, which affects the year-over-year comparison.

With these considerations, we expect Q4 GAAP revenue to be in a range of $136.6 million to $146.6 million and non-GAAP revenue to be in a range of $137 million to $147 million. At the midpoint, this represents a 13.6% sequential growth. GAAP gross margin is anticipated to be in a range of 50.5% to 52.3% and non-GAAP gross margin is anticipated to be in a range of 53.5% to 55%.

Operating expenses are expected to be in a range of $71.6 million to $73.6 million on a GAAP basis and $63.5 million to $65.5 million on a non-GAAP basis. The sequential increase is related to compensation expenses including commissions on higher revenues. Tax expense is expected to be relatively consistent with quarter 3 levels.

The GAAP net income loss is expected to be in a range of a loss of $4.2 million to a net income of $1 million or loss of $0.04 per share to a profit of $0.01 per diluted share. Non-GAAP net income is expected to be in a range of $8.1 million to $13.3 million or $0.08 to $0.12 per diluted share. The average shares outstanding are expected to be 105 million on a GAAP basis and 107 million on a non-GAAP basis.

Now I'll open the call for questions.

Thank you. (Operator Instructions). Matt Robison, Wunderlich.

Hey, gents. Nice job. First question on these executive transition costs. It looks like you had both sales and marketing and G&A. Can you give us a little bit of background? The sales and marketing number was pretty significant, implying you've changed some management there. Is that something new that happened in the quarter or what's the background for that? And I've got a couple other follow-up ones.

Yes, Matt. This is Ken. Yes, it's something that occurred during the quarter. We had a transition in our leadership in EMEA and we transitioned our prior leader out. He was a VP of the European operations or EMEA operations and that what you see in the sales and marketing line. And in the G&A line it was a transition in some administrative functions within the Company at a VP level.

Okay. Now, interesting that your guidance is pretty solid despite the absence of e-rate. Can you say a little bit about how e-rates contributed maybe in relative terms sequentially for the third quarter?

Yes. So when we came into the quarter, we had indicated that we'd be on the higher end of the range for e-rate, the $10 million to $20 million range in revenue for the quarter. That's exactly where we came in, at the high end of the range for quarter 3. And then, for quarter 4, as we're thinking about it, that $10 million to $20 million range, our anticipation at this point in time is we'd be on the lower end of that range for quarter 4, at this point.

What verticals do you expect to make up for it in the fourth quarter?

Well, we would expect that education is going to continue to be strong for us. It's always a strong vertical for us. Manufacturing is a strong vertical for us. And then, government, as well. So, those are the three major verticals that we see growth in, in the business.

Yes, Matt. And, as we go forward, we're going to be looking to drive growth in all of these verticals. So, I don't think we can point to a particular vertical for the quarter.

Fair enough. Ken, housekeeping, maybe sometime in the call gave us depreciation for the quarter. And on the wireless, you took some sort of surprising reserves for the December quarter because the new wireless products were ramping. Can you talk about what you saw for growth in wireless? I know, Ed, you touched on it a little bit, but give us a little more detail on that and how it compared.

Yes. So, we're seeing growth in our solutions selling and we're emphasizing wireless. We've shared, on previous calls, the amount of training that's gone on. We've educated our sales teams to sell wireless. Now we have 100% of all of our AEs, as I mentioned on the phone, who have made wireless sales and over 50% making wireless sales over $100,000. So, we're expecting to see wireless sales increase and grow, I would say, ahead of the industry.

Okay. I'll leave the floor now. Thanks.

Matt, the question on depreciation. It's about $3 million for the quarter.

Sorry, I didn't catch that.

I said depreciation was about $3 million for the quarter.

Thank you.

Thank you. Simon Leopold, Raymond James.

Hi, guys. This is Victor Chiu in for Simon Leopold. Can you speak some about the competitive landscape and how Brocade acquiring Ruckus impacts you and what your outlook is for that going forward?

Sure. Hi, Victor. Yes, I mean the first thing to point out is when Brocade announced the acquisition of Ruckus, as I mentioned in my comments, it validates our strategy. They clearly feel the need to have wireless. We've heard a lot of different things in the industry about Brocade and Ruckus and the rationale behind the deal.

It seems to us that Brocade is playing at the higher end of the enterprise market and they're following on the heels of HP and Cisco, really, in all the different markets that they're playing in. We do run into Brocade, but they're more one-offs than a regular competitor that we see in the marketplace. We've heard that Brocade is coming out with a higher-end switch to go head-to-head with Arista. We know they've been -- most of their business is in the storage side. And with Ruckus, we know that they're focusing on service provider. We know that they've been focused in the federal space.

These are areas where we don't play, including the higher-end data center. So it remains to be seen how things will change. As I mentioned before, we see them in, more or less, one-off situations. We're not underestimating the fact that the combination of their wired and wireless portfolio, it's likely that they're going to show up more at the enterprise. As I mentioned earlier, we're seeing them focusing on the larger enterprise and less on the medium-sized enterprise that we're going after.

Great. Great, that's helpful. And I guess I just wanted to ask one question on geography. I think I noticed that EMEA was a bit weaker this quarter. I just wanted to get a sense for how much of that is macro and how much is related to the change in the staff in the region.

We actually grew in Germany, which is our largest market in EMEA. And, as I mentioned, EMEA has the highest margins. Our teams in EMEA are confident in what's going on there as far as the rebound in the Western European countries. So, we're bullish on what's going on in the UK and opportunities there, also in France and Italy and Spain.

We have been affected. We do have business in Russia and in Turkey, which is in our EMEA region, and we have been negatively impacted by some of the geopolitical activities there. But we're confident in the rebound.

We also mentioned that we've hired a new lead. John Morrison comes in as a very strong leader, replacing someone who's been at Extreme for over 14 years. John is very strong, great chemistry with the team already. He had been at Huawei and at Cisco. Very knowledgeable of the industry and we're very confident with his leadership, with what's going on in the respective markets, that we're going to see growth in EMEA going forward. And, as I mentioned, the gross margins and the higher volume of solutions selling in that market is also giving us confidence in terms of the rebound in our gross margin forecast.

Great, thank you.

Thank you. Christian Schwab, Craig-Hallum Capital.

Great quarter, guys. Just, Ken, on inventory quick. Are we done with the old -- the take older product that we've kind of shoved through on the system with the decline in inventories going into a historically very strong quarter? And then I thought you said you also thought, maybe I heard you incorrectly, thought you would take inventories down even further, exiting the June quarter. Did I hear that correctly?

You did hear that correctly, Christian. From where we are now, we think we have opportunity to bring it down further by the end of the fiscal year here.

As far as our inventory situation, we've done a good job of selling a lot of the older products. At this point in time, we're not anticipating any impacts or unusual items hitting quarter 4, which is reflected in our guidance. So, the team has done a really good job in moving some older inventory and taking some actions to make sure that we find homes for it.

Congrats on that. How does the new e-rate sales process and win looking with the expansion of salesforce?

I'll take that, Ken.

Yes.

We have more and more of our sales teams getting active in e-rate. So, we're seeing a lot of activity there. We're also, we're more confident in our product portfolio and selling more wireless. So, we're expecting to see a higher concentration of wireless in this go-round.

I will comment that the competitive process for e-rate has heated up so we're seeing a lot more competitors and more competitive deals. But we are confident in terms of the teams and what will come out of it.

Given the timing, it's too early for us to handicap how it's going to play out this year. We are expecting to come in at least at the same level from where we did last year, which was $92 million, which netted out between $60 million and $65 million of e-rate revenue for us, that we're projecting for this year. So, we're guardedly optimistic because of the higher participation rate of our sales teams, because of the product mix, but we're also being somewhat cautious because of the level of competition and the fact that we don't have visibility at this stage.

Yes. That's a great answer. Thank you. So, with that in mind, e-rate being flattish, maybe modestly growing as people figured out now that, everybody has, that it's a good spot to go to, we talked earlier, Ed, about growth in 2017, fiscal year 2017, in your prepared comments. When you say that, obviously growth is greater than zero, but is there a target range that we should be thinking about? I know previously we had talked about returning the Company eventually to a plan of trying to get to double-digit growth. We might be a little bit early, given kind of more of a subdued economic environment today. But, what should we be thinking about for next year and beyond, if you'd care to comment on that?

Christian, yes, we're not prepared to put a number out there yet. We're still working on our internal plans that we will take through and review with our board and ultimately come out with guidance for next year. We're not there yet. I am confident with the internal work that we've done in rolling up the different sales teams that we will be projecting growth. We mentioned the growth in solutions selling and the higher ASP associated with solutions sales, which will be a driver. Our penetration of verticals also. Returning strength in EMEA as well as rebounds in Asia Pacific and LatAm. So, all of these things combined, we're very confident that that is going to put growth on the board. In terms of a forecast number, I can't give it to you yet.

Yes. That sounds great because it sounds like 2% to 5% to me. But as far as -- well, my last question if I may. On solutions sales, is that extending the sales closing period? Is there any significant changes in the length of the closing period as you've moved to solutions sales or not?

I think that's fair. It's going to be hard for me to quantify it. I think it's a good point. Obviously, if you're buying a point product versus if you're buying a full-fledged solution and deploying wireless access points, software, etc. it's likely to be a longer sales cycle. So, I think it's a good point and I think it's something that we could probably follow up offline if you want to dial it in and get more specific.

Okay, that would be great. Thanks again. Great quarter.

Okay. Thanks, Christian.

Thanks, Christian.

Thank you. (Operator Instructions). Ryan Flanagan, Buckingham Research.

Hey, guys. Thanks for taking my question here. Just on returning to the GM here briefly, I know we were at the lower end of the range. I think we understand what's going on there, moving some older products and some fixed costs involved. When so we see or maybe how do we see that get back to the mid-50s%, above 55%?

We have a number of initiatives that we have going on internally to drive our gross margins up to the mid-50% range and beyond. We think we have opportunities to do that. We're early in the stages right now. But, as we go through our planning process, what we're doing is identifying certain initiatives, identifying certain people that will be responsible for driving those initiatives, and driving those margins to 55%. So, I would say, over the next fiscal year, we should see us starting to move in that direction.

I think that's fair, Ken. Ryan. I would say we have -- there's our strategic initiatives, which are around solutions selling. I mentioned 10 points of extra gross margin when we're selling a complete solution. So, there will be a benefit in gross margin, longer term, as we move and have a higher concentration of solutions sales. And that's where we're driving the Company. And then, we have a long list of tactical items that we're aggressively going after to take up the gross margin.

Got it. Okay, thanks. And then, just one follow-up. And, look, I know you're only guiding one quarter at a time here. But with a return to growth on an organic basis, speaking to the levels of growth that you see, the broader market, I think you said plus or minus 2%. Is your expectation that you exceed that in 2017?

Our expectation is that we will take share. When you look at a macro market, there are a lot of different factors. We're looking at Gartner and IDC, Dell'Oro. Where do you draw the line as far as an enterprise? What's a high-end enterprise versus a medium-sized enterprise? There's a lot of different factors that are going in to coming up with that industry growth rate. We fully expect to take share in this market. So, I think if you were to look at a 1%, 2% industry growth rate and assume that we're going to be taking share, then I think, you're right, that it would be a little higher than that.

Appreciate it. It's helpful, guys. Thanks.

Okay.

Yes.

Thank you. And I'm showing no further questions from our phone lines. I would now like to turn the conference back over to Ed Meyercord for any closing remarks.

Thank you. Well, I'd like to thank everybody for your participation in the call. It was a good quarter for us, a solid quarter. We're really excited about all the initiatives that we have going on here, from our go-to-market, what's happening with our sales organization, all the work that's happening in marketing and our PLM teams in terms of driving product development. We expect a strong showing next week at Interop. Our engineering teams, both from the software and the hardware side, have been putting forth a great effort. And we feel very confident about the competitiveness of the solutions that we're putting into the market.

Most importantly, we're aligned as a team. We agree on our vision. We're getting very, very, very focused on this market segment and we don't think any of our competitors are. So, we think this a really good opportunity to drill down, take share in this enterprise segment of the marketplace. It's translating into growth for us and improved financial performance. We think this is going to gain momentum in the quarters to come. So, thank you for your participation, for your questions. Have a good evening.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.