Extreme Networks Inc (EXTR) 2026 Q1 法說會逐字稿

Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Extreme Network's first-quarter FY26 financial results conference call. (Operator Instructions)

Thank you. I will now turn the call over to Stan Kovler, Senior Vice President of Finance and Corporate Development. Please go ahead.

Thank you, operator. Good morning and welcome to the Extreme Network's first-quarter 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 Edward 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 quarter, first quarter of 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, and 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 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 may reflect our analysis as of today. We have no plans to update them except as required by law. And following our prepared remarks, we will take your questions. And now I will turn the call over to Extreme's President and CEO, Edward Meyercord.

Thank you, Stan, and thank you all for joining us this morning. The first quarter marked our sixth consecutive quarter of revenue growth and third straight quarter of double-digit year-over-year increases. Strong execution and our differentiated technology solutions are fueling market share gains, driving growth in the Americas and expansion across the EMEA and Asia Pacific.

Revenue reached $310 million, up 15% year-over-year, driven by competitive wins with large customers across all verticals. Product revenue increased double-digits year-over-year for the third consecutive quarter. Sustained growth in our cloud subscription drove SaaS ARR up 24% year-over-year to $216 million.

One of the important growth engines with large enterprise customers continues to be Extreme Fabric, which is uniquely designed for enterprise campus environments. We deliver unmatched automation of service delivery with zero-touch provisioning, unique security benefits, and millisecond convergence that supports greater resiliency that our competitors can't replicate.

There's strong interest in our new Extreme Platform ONE, which uses agentic, conversational, and multimodal AI to transform networking, cutting routine tasks from hours to minutes. We're also seeing increased adoption of our Wi-Fi 7 solutions, which boost network efficiency, minimize downtime, and support the demands of modern business applications.

Given our momentum in technology innovation, IDC recently recognized Extreme as a leader in its 2025 MarketScape, highlighting our Fabric, Extreme Platform ONE, flexible deployment via universal hardware, and expertise in high-density environments with key differentiators.

We're also seeing strong growth across our commercial models with our MSP program partners and bookings, both nearly doubling year-over-year and bookings up nearly 30% sequentially. Our consumption-based billing eliminates upfront costs, while poolable licensing lets MSPs easily allocate licenses across devices, locations, and customers, supporting scalable growth.

In the quarter, we expanded our footprint within a major government in Asia Pacific where we displaced a leading competitor. The project will create a network that connects all government offices nationwide with Extreme Fabric over SD-WAN.

Our proven execution with government agencies in the region is opening very large and valuable new partner relationships and expanding market opportunities, including new sovereign cloud capabilities that enable highly regulated customers to leverage our AI-powered networking innovations. This is a major factor in our ability to win larger deals and move upmarket.

Other wins in the quarter included T-Mobile Center, a premier multi-purpose arena in Kansas City, chose Extreme for our proven expertise in deploying next-generation wireless in high-density venues.

Exyte, a EUR5 billion global leader based in Germany specializing in clean room technology and complex plant engineering, is standardized exclusively on Extreme for LAN, wireless LAN, network access control, all managed by ExtremeCloud IQ.

Burgers' Zoo in the Netherlands, at over 111 acres, recently deployed Extreme wired and wireless solutions managed by Extreme Platform ONE to ensure reliable connectivity for security cameras, ticketing, guest Wi-Fi, mobile point-of-sale systems, and smart habitats.

Global healthcare organizations like University Hospital Birmingham NHS Foundation Trust and Henry Ford Health are deploying Extreme's Wi-Fi 7 to enhance bedside patient access, keep critical medical devices online with real-time data transmission, and support advanced applications such as real-time imaging and secure clinician mobility.

Gateshead Council in England deployed Extreme Fabric to modernize and secure its network across roughly 200 sites, creating a unified, secure, and agile digital foundation managed through Extreme Platform ONE.

In September, we announced an extension of our relationship with the NFL into 2028. Now in our 13th season as a partner, Gary Brantley, the CIO of the NFL, said partnering with Extreme Networks has been transformative in the NFL, elevating both our stadium operations and the way fans experience the game.

We're the only vendor in our space offering true cloud choice and deployment flexibility. Customers can choose our cloud solutions across public, private, or hybrid environments, and we include AWS, GCP, and Microsoft Azure in our public cloud menu.

In contrast, many of our competitors are locked into public cloud only and expensive purpose-built architectures, creating major hurdles as they attempt to build the flexible deployment models that customers demand. These capabilities are driving growing interest in Extreme and competitive wins.

Extreme Platform ONE, which became generally available in the first quarter, is earning positive customer feedback for AI-powered automation that cuts routine IT tasks from hours to minutes, improving efficiency and accelerating issue resolution, especially with the addition of our innovative service agent. Previously, IT teams had to manually gather logs for multiple devices, correlate alerts, run diagnostics, and then create support cases, often taking hours or even days per issue.

Our service agent assigns automated tasks to sub-agents with complete visibility to its reasoning at each step, with an emphasis on human-in-the-loop. It diagnoses problems, collects the necessary evidence, and generates support cases in minutes, allowing IT teams to resolve issues far more quickly and efficiently. Extreme agentic AI architecture goes well beyond our competitors' older, first-generation, and limited AI features.

Extreme Platform ONE's simple interface, or AI canvas that is truly unique in the industry, removes the complexity of navigating multiple applications, copying data between systems, and manually tracking device lifecycles, subscriptions, and compliance. Now, all this can be customized with a composable single interface with automated tracking and real-time alerts, delivering unmatched visibility, efficiency, and faster, more reliable IT operations.

On November 13, we'll host an AI Summit in New York City to share trends, strategy, expert insights, and our vision for the next wave of AI-driven innovations. You should tune into this event to better understand the future of enterprise networking.

Finally, we recently released our Corporate Responsibility Report for fiscal '25. Since 2021, we've reduced our emissions by 34% and cut our office footprint in half, lowering electricity, natural gas, and water usage. Looking ahead, we aim to source 50% of electricity from renewables and cut emissions by 50%. Given this success, Newsweek recently recognized Extreme as one of America's greenest companies.

For the remainder of fiscal '26, we expect revenue growth to accelerate to 10%. Given the growing volume of large opportunities and our increasing winning percentage, we believe this fiscal year will mark an inflection point in our company's growth trajectory. Now let me turn the call over to Kevin to discuss financial results and guidance.

Thanks, Ed. I'm very pleased to report strong first-quarter execution and financial results, with revenue exceeding the high end of our guidance range. We achieved earnings per share of $0.22, exceeding the midpoint of our guidance range and consensus of $0.21 per share. Earnings per share was up 29% from $0.17 per share in the year-ago period.

Total revenue in the quarter was $310 million, and that grew 15% year-over-year. This marks our sixth consecutive quarter of growth and the third consecutive quarter of double-digit year-over-year revenue growth as well.

SaaS ARR once again grew 24% year-over-year, driven by recent large wins, adoption of our new Platform ONE, and from expansion of our new commercial models. The adoption of Extreme Platform ONE was well ahead of our expectations in the quarter, and the sales pipeline is looking very strong.

Bookings in the quarter grew 21% year over year, reflecting strong customer demand across our portfolio. Our year-to-year bookings growth across all regions is a testament to the success of our new commercial models, larger customer wins in Asia Pacific and EMEA this quarter.

Our new commercial models are contributing about 14% of our total new subscription bookings, and we expect this to grow over time. Product bookings were comfortably ahead of our product revenue in the quarter, as book-to-build ratios were strong.

Product revenue of $194 million grew 20% year over year and was up 1% sequentially in a traditionally seasonal slower quarter. Driven by strong demand for Extreme solutions, we continue to move upmarket and grab market share. We achieved our sixth sequential quarter of product revenue growth, which is driving subscription attach and ARR growth.

Geographically, we saw particularly strong performance in Asia Pac and EMEA, as we continue to benefit from recent larger new customer wins. We continue to gain traction in the region as a strategic alternative to incumbents, particularly in the public sector and hospitality.

In the first quarter, 36 customers spent over $1 million with Extreme, up from 34 last quarter and 27 in the prior year quarter. Total subscription and support revenue was $116 million, up 9% year over year. Total recurring revenue grew 8% year over year, representing 36% of total revenue.

As a result of our growth in SaaS ARR, SaaS deferred revenue jumped 16% year over year to $327 million, and recurring revenue growth brought the total deferred revenue up to $618 million. This growing base of contracted future revenue provides strong visibility into recurring revenue and healthy margins.

Non-GAAP gross margin was 61.3% in the quarter and was impacted by industry-wide increases in component costs, such as memory, metals including copper and aluminum, and other semiconductor parts. We do expect margins to recover over time, as we recently implemented some price increases, like others in our industry, to mitigate the higher costs and drive margin recovery over the course of fiscal 2026. In addition, discount trends have been stable across our business. We expect to exit with gross margins up to 100 to 200 basis points from current levels.

Our first-quarter operating expenses were $149 million, which were primarily driven by higher one-time sales commission expense due to accelerators for large deals we recently closed. Operating margin was 13.3%, up from 12.4% in the prior year quarter. We expect to continue to achieve operating leverage throughout the rest of fiscal 2026.

I'm pleased to report that we generated $45 million in EBITDA, up 21% year over year, as we continue to drive profitability ahead of revenue growth. Free cash flow usage of $21 million was largely due to one-time payments associated with finalizing certain legal matters, which are now behind us.

Turning to capital management, during the first quarter we repurchased 577,000 shares for a total of $12 million. We ended the quarter with $209 million in cash and had a positive net cash position. We continue to improve our cash conversion cycle, down to 60 days from 81 days in the previous quarter, as we continue to improve and lower inventory balances. We expect a recovery in cash flow during the rest of the fiscal year, as we continue to grow revenue and improve profitability.

Now turning to guidance, for the second quarter of fiscal 2026, we expect guidance as follows: revenue to be in a range of $309 million to $315 million, gross margins to be in a range of 61.4% to 62%, operating margin to be in a range of 13.4% to 14.6%, and earnings per share to be in a range of $0.23 to $0.25. Our fully diluted share count is expected to be around 136 million shares.

For the full fiscal year 2026, we expect revenue to be in a range of $1,247 million to $1,264 million, with some normal seasonality in Q3 followed by sequential growth in the fourth quarter. The midpoint of this range suggests 10% growth year over year.

Our goal for SaaS ARR continues to be in the low 20% range for year-over-year growth. Recurring revenue is expected to be about 35% of total revenue in fiscal 2026. And with that, I'll now turn the call over to the operator to begin the question-and-answer sessions.

(Operator Instructions) Michael Genovese, Rosenblatt Securities.

Thank you. Thanks very much. Can you talk more about these component price increases hitting the gross margins, sort of what's going on there and then also touch on plans to kind of lift ASPs through Extreme Platform ONE or price increases, so gross margins now and sort of the plan to improve them going forward?

I can jump in high level and then Kevin, why don't you come back and follow up. Thanks for the question, Mike. Yeah, we've seen prices in memory and optics shoot up in the near term, and Kevin mentioned in his remarks that we put in place a price increase to recover those expenses.

Yeah, I'd say in addition to what would be a mid-single-digit price increase, where we would really feel the impact there in Q3 and Q4. We've got a variety of other initiatives, tactical initiatives from the supply chain teams to help us drive the gross margins back up over that 63% number. Kevin, do you want to add to that?

I think you're right, Ed. And I mean we had talked about this pretty openly in Q4. We had about $1.5 million of incremental costs, right? We were waiting a little bit there, Mike, around what was the industry going to do from a price increase perspective.

We saw industry price increases go into effect across Cisco and HPE and Juniper, and so that gave us, if you will, the license to also raise price on our end as well to recover some of those costs that we saw, and naturally we'll see those come into the business over the next couple few quarters. And that's why we're guiding up to get to 63% by the end of the year with a 100 to 200 basis point improvement.

On the ASP question that you asked, I mean, we are expecting an increase in average selling price, especially on the cloud applications that we have, in particular with Platform ONE, and we're already seeing that already with the bookings that we're seeing. We've talked about 10% to 15% increase in what we're seeing there, and so we're still on track for that.

Great, and I have two more questions. I'll just ask them at once, even though they're unrelated. One, I didn't hear anything about a federal government shutdown. Certainly didn't see it in the revenues here. So just want to ask about federal exposure and anything you're seeing from the shutdown.

And then secondly, just on a sort of Cisco versus Juniper competitive environment right now, are you seeing more traction against one versus the other? Thank you.

Yeah, maybe we'll take them in order, Kevin, and we'll cover the federal question first. Mike, given how small our market share is in the federal space and given that we just recently certified our portfolio and we're now in a position where we can bring Fabric, we can bring cloud, we've really opened the door to the federal market. And I would say that the shutdown for us has had little to no impact on our business. If anything, we're seeing much larger opportunities open up on the federal side with the growth and the expansion of our certifications.

As far as E-rate business, we really see no impact to our E-rate business, and we've got a very healthy E-rate cycle. Kevin, I don't know if you want to add to that before we go competitive.

No, I think that makes sense. That's it.

Okay, yeah, on a competitive front, Mike, we've got two different things, two very different things going on. Obviously, we have HPE acquiring Juniper. I think we're surprised at how long it's taken them to put their plans in action.

The first thing that we've been able to take advantage of is on the human talent front. We've been able to hire some great talent, which is going to help us when we talk about moving upmarket. We're bringing people on Board that also have connections in the channel and directly with customers and with MSPs, for example, who are going to help us accelerate and move upmarket. So that is a positive.

And we also hear from the channel and then we also hear from customers who are confused about the roadmap and exactly which way the technology is going to go. There are mixed signals that come from corporate versus what's being set out in the field, and that's always helpful for us.

As it relates to Cisco, it's a very different situation. Cisco is overhauling their partner program, and it's going to create a lot of disruption that’s going to play through not only for partners but also for customers. And that's creating different opportunities.

This is kicking off in the beginning of November, so there's been a lot of discussion. We've been privy to some of the changes that they're making in the plans, and net-net, the changes are going to favor the very top Cisco partners. These are partners that we do very little business with.

So we think it will leave the mid-tier and smaller partners somewhat disenfranchised, looking for alternatives. And here we feel like there's an opportunity now that quite frankly we haven't seen in a very long time. So we're excited about the channel disruption there, and then as we look over at HPE, it's about people and it's about confusion as it relates to the roadmap.

There's some issues with Mist being a public cloud as the only play there. And you know as we look at -- and what we highlight in some of our comments, the importance today of cloud choice and cloud flexibility as far as items, important items like data sovereignty, etc. So as HPE and Juniper try to mash together their portfolios and their clouds and their lakes, etc., this is going to open up some opportunities for Extreme. Kevin, feel free to jump in and answer that.

I think you nailed it all, yeah, and obviously Cisco's publicly announced their refresh opportunity, which is our refresh opportunity as well to go out to them. I think the competitive markets right now are very frothy for us in terms of being able to take some of the competitive dynamics and turn to our favor right now. So I think we're seeing that reflected in our financial results and our revenue growth as well.

Perfect, thanks. I appreciate all the detail.

Thanks, Mike.

Ryan Koontz, Needham & Company.

Thanks guys. Good morning. I want to ask about Platform ONE and where you are in terms of that commercial introduction. I know it's a new product, and can you share any kind of metrics you have or any kind of qualitative feedback from customers on renewals and what kind of traction you're seeing there with Platform ONE, that’d be great? Thank you.

Sure, thanks for the question, Ryan, and I will say we're going to -- our Investor Day, we'll dive into a lot more detail and you can hear directly from our PLM and engineering teams. And then we have our AI Summit, which is really about the future and the vision of where we're going with our agentic AI platform.

At this stage of the game, it's early for us to present metrics. If you'll recall, we went GA with Platform ONE at the very beginning of the first quarter, and with that, commercially we're selling Platform ONE. But our customers still have the availability to use XIQ and Site Engine and all the applications they've had before.

So when they're buying a new license, it's backwards compatible. This is a decision that we've made, and it's been very popular. Basically what that means is that customers are able to buy the license and they're able to work within the platform, so they're getting to know Platform ONE as we complete the first wave releases of Platform ONE, which will be towards the end of this year, towards the end of November and December. That's when we expect to see customers start to make the full migration and move entirely over onto the new platform.

So what I would say is based on how we measured it, we're obviously tracking this very closely. We've seen high adoption, we've seen a lot of excitement about the capabilities. As we mentioned, we've just released our service agent, which can provide a lot of benefits to customers, and I think there's a lot of excitement about that.

And there's a lot of differentiation with what we're bringing to market and what's been out there as far as those gen-one AIOps solutions. So it's early innings for us, and what we've shared is that as we turn the corner on the calendar year, that's when we'll start opening up and creating metrics for the street.

And I would just add to that that it was ahead of our expectations in the quarter, which is obviously that then.

Got it. Thanks so much, Kevin and Ed. And maybe if I could follow up relative to your TAM -- TAM growth, I assume it's kind of mid-single-digits. How should investors think about your long-term revenue growth prospects relative to your share gains and your strength in markets you're seeing?

Well, yeah, what we've talked about is repointing the year-over-year growth to 10%. And what we're also looking at is the growth of Extreme Platform ONE and the kind of services that we can bring to bear and the solutions that we can bring to bear.

If you look at the traditional TAM for Extreme and we look at our largest win in the quarter, the largest win in the quarter was also our largest SD-WAN win ever, in which case in a very innovative solution, we're bringing our Fabric technology across the wide area network and creating a very unique solution for government customers. This has also spawned a lot of other opportunities, and I would argue that this is TAM expanding for us.

I've also mentioned the fact that we've turned up certifications that are allowing us now to have hunting licenses to go play in the federal markets, and we're doing some things in terms of cloud ops and making investments in Europe that will also open up new government opportunities in those markets.

The last area to comment on are those commercial models where historically we haven't played in the MSP space and we're getting traction. I think we would all say that the MSP evolution has taken a little longer than we thought to get rolling, but it seems to be hitting its stride, and the growth metrics obviously for this quarter were very strong.

So yeah, as we look at the overall market, we see Extreme taking share, and we look at ourselves longer-term as a double-digit player with higher growth and more emphasis now on services and solutions that will evolve from Platform ONE and that subscription line. Kevin, do you want to add?

No, I think as we think about the new commercial models like you talked about, we think about Platform ONE, that's all going to drive growth on the ARR, the SaaS ARR side, right? And we're seeing that now growing 24% year over year.

So we're going to continue to drive that part of the business. I think it's a solution, right? It's kind of hardware and software, but I think we're adding more and more software solutions. And there's a bit of a transformational journey that the company is going on right now to create more recurring revenue, helps our margins, helps our margin profile in terms of improving it better, and helps our profitability as a business.

So it is a full solution with everything, and I think people are realizing the benefits of all of the different kind of product offerings that we have as a company, and that's helping us compete better and go upmarket.

Got it. Thanks guys. Just a quick follow-up there on your MSP or MSP traction there. Did you have a new MSP count? I know you just closed that in the past.

Yeah, we're at 61 now.

Got it. Okay, thanks guys. Appreciate it.

Thanks.

Dave Kang, B Riley.

Thank you. Good morning. My first question is regarding Cisco's recent partnership with Nvidia. So I was just wondering what your kind of major would be.9

Yeah, Dave, I think if you think about where we're focused, we're not playing in the market which is building networks for AI systems. We're in the market for bringing AI to networking. And so we're leveraging AI tools.

And you know we talked about this conversational, multimodal, agentic platform. We have a true agentic structure that we've built. We've released our service agents. You'll hear us talk about in our AI Summit and on Investor Day the evolution of the release of many agents and many new services that we'll bring to bear.

This is where Extreme is leading, and I think it's important that we make that difference between building networks for AI systems versus leveraging AI technology for driving enhanced performance and visibility and capabilities for people delivering their networking experience.

So that's where we're focused. This is where Extreme is a leader. We're in a very strong position. We actually, given our size, have some competitive advantages relative to some of these larger players, and this is where we're making a dent in the market.

Got it. And my second question is regarding gross margin. Kevin, I'm trying to understand, so you talked about component prices going up, so that was roughly about 100 bps impact?

Yeah, I mean probably about that, somewhere in that range. I mean there's a combination of things here, right, Dave? We expedited some of our deliveries for some of these larger customer wins, so there were more expedited fees there. We also have just component costs that are higher than we expected. The 100% China tariffs kicked in on some of those component costs as well.

And then also just the cost of copper and aluminum and some of these metals as well just went up throughout the quarter. So those are some of the costs that we had experienced, and we had talked about $1.5 million in Q4. We continue to see about roughly the same amount in Q1, and now we've raised price to basically offset that into Q2, beyond -- and then Q3, Q4 as well, because it's obviously partially in Q2 and then with it becoming November 1 effective date, and then we'll see a full quarter effective in Q3 and Q4.

And I think you said you're going to raise prices by mid-single-digits. Did I hear that correctly?

Yeah, we looked at all the different SKUs. Some are in the low single-digits, some in the mid-single-digits, but we looked at the SKUs across -- some we didn't change at all. But I mean at the end of the day, we kind of looked at it and then we kind of followed the industry pattern from what HPE, Juniper, and Cisco did.

Got it. And my last question is, was there any FX impact?

Very little. We hedge our balance sheet, and so we don't have a lot of FX issues.

Chris Schwab, Craig-Hallum.

Congrats on a good quarter, guys. Just to further clarify on the gross margin, given the increased prices of different commodities and raising prices to offset that and seeing an improvement in the second half of this fiscal year, which you've made clear, can you just remind us following that going into the next fiscal year, what you think the targeted gross margins will be given the increased Platform ONE and services and subscription growth? Are we targeting to be a 62% to 64% gross margin or are we still kind of thinking 62%-plus or minus?

Yeah, maybe we can hold that for the Analyst Day here on November 10 because I think we will walk through what the long-term model looks like beyond this year as we think about the next two or three years. I don't think there's going to be a lot of change from the 64% to 66% range that we've talked about in the past.

It's really these more acute component costs that we've seen recently where we've had to raise price against them that have caught us a little bit unexpected over the last year or so, and we're just basically making the price changes to combat that. But I do believe that from a long-term perspective, the SaaS subscription revenue growth engine in the business is going to continue to help us drive those margins in the future. So we're still very optimistic about the financial model of the future.

Yeah. I would just add to Kevin and Chris, I would just say we haven't changed our long-term outlook for gross margins. And mix will factor into the equation. We are expecting a very significant ramp in Extreme Platform ONE, and there will be margin benefits there.

Keep in mind, there's the combination of that service element to our solution set along with the subscription and enhanced new services. So that really starts to come into play in fiscal '27 and fiscal '28. What we see happening with gross margin currently, these are sort of more near-term tacticals that we correct. We've been in this movie before, and we know how to correct these things.

So as Kevin mentioned earlier, we'll get ourselves back up to that 63% and then get back on track to the longer-term goal. I think we have a 64% to 66%.

Great, and then my last question, and maybe give you a chance here, the 10% top-line growth exceeding the tail of the industry as we talked about federal markets, Europe, Platform ONE, services, solutions, but the bookings continue to be very strong. Is there anything else going on in the marketplace regarding total cost of ownership, just making a better product that is driving that or is it pretty much everything we've already discussed?

Christian, I think it's pretty much everything we discussed. If you just look at Extreme, we've continued to invest in our Fabric technology. It's one of the quivers that we have from a competitive standpoint, but we're the only ones that have this, and we have unique capabilities for enterprise campus solutions.

I think larger enterprise customers are surprised when we get into proof of concepts, and all of a sudden we're starting to demonstrate our capabilities that our competitors just can't match. One of the very largest defense contractors in the world who's actively looking at Extreme has said, wow, what you guys do in six minutes is taking Cisco six hours to do, and we actually have this time-lapse video where we show this.

But when we talk about the automation and the capability, the delivery of services, the security benefits that we bring with this technology, how that produces a very different kind of wide area network SD-WAN solution when we apply Fabric, when we look at the sub-second and millisecond convergence as far as resiliency of the network, the large players can't replicate it. So this is something where we're moving upmarket and we're winning and we go toe-to-toe.

Now when you add on top of that Extreme Platform ONE and the fact that we'll be bringing these capabilities into the platform with enhanced visibility and having one single place to drive our multi-vendor capability, that's something that is quite frankly, we bring choice and flexibility and new capabilities and we go toe-to-toe and we win against the larger competitors.

So I think we have technology differentiation more so now than we had. Yes, we're out in front with Wi-Fi 7. Yes, we have these new commercial models and ways to win and new certifications, etc. We're staying up front and staying out front of that. But yeah, we have real differentiation today, and our teams are executing well. Our sellers are executing well, and the channel's picking up on it.

We see this in our funnel. We see this with the close collaboration of our teams and our sales teams as we look at these opportunities and we look at higher win rates. And then the last factor is what was brought up earlier by Mike, where it's a bit of a mess at HPE's Juniper right now. And there's a lot of confusion. There's a lot of people changing.

Now they're setting up overlay teams and who's covering the channel, who's covering the customer. There's just a lot of unknowns that create opportunities for us. And then the same thing is true with Cisco, talking about their refresh but then also talking about making it really difficult for partners below, partner number 50 to make money. And they have thousands and thousands of partners.

So there's just -- there's a lot of disruption right now with the largest players at 75% of the market that are causing people to take a look at Extreme. And when they take a look at Extreme, they're kind of blown away by our technology, our differentiation. And keep in mind we always win very high marks for the level of our customer support and how people work with Extreme, and they feel like there's a different level of customer intimacy that we bring to the equation.

Great. Thank you for that. No other questions.

David Vogt, UBS.

Great. Thanks guys for taking my question. Guys, I want to come back to the gross margin question again. I'm sorry to belabor the point, but obviously we've had a pretty steep rise as you guys called out in memory and optics. And Ed, I appreciate the potential cyclicality of those markets if history is any guide, but the severity of the increase is pretty daunting.

And I want to get a better sense for how you're thinking about how you're pricing in that dynamic the balance of the year. I appreciate the price increases that you talked about, but is there a chance that you could come back and effectively take another bite at the apple if need be from a pricing perspective? Or do you think the price increases that you announced ac9ross the portfolio, low single-digits to mid-single-digits, covers you for the balance of this year if things get potentially a little bit more challenging?

And I'll give you -- my second question is, Kevin, maybe for you on the subscription side, obviously SaaS has been a big driver. You've done a great job there, but I guess I'm trying to understand the gross margin dynamics on the subscription support side, looked a little bit light relative to Q4, down sequentially. And what's going on there?

I would imagine that support services or installation is probably a bit lighter in revenue, so I would have imagined that support subscription gross margins would've been up sequentially. Any kind of color there that you can share with us would be great. Thanks.

Yeah. What I can -- Kevin, you want to (multiple speakers) yeah, upfront in terms of memory and optics. And Dave, you can imagine we're all over this. And we had teams of people, and we're very actively engaged with our suppliers across the Board. It's kind of an all-hands-on-deck.

There are secondary suppliers of both memory and optics for us that we look at, and we're very active is what I would say. We feel very confident in, one, and how we're calling the current market conditions and, two, our plans to recover where we are.

And we have baked that into a price increase. We do not expect to come back and revisit and have yet another increase, and we feel very confident in terms of how we planned it. Kevin, do you want to talk about the combination of the subscriptions?

Yeah, I'm happy to. So we are investing a little bit on the subscription side with Platform ONE on the agentic AI, so there's some increased, I'll call, cloud spend that we have on our end. Please don't take that as like that's going to be forever more. These are just upfront investments as we launch Platform ONE to have a more robust agentic AI agent experience for the customers.

We fully expect all the pricing that we have and the bookings that we're getting from Platform ON. Remember when we get a booking for Platform ONE, it gets recognized over time. So you're not even seeing today in our first quarter results, even the total bookings that we had in the quarter being reflected in the revenue so far.

So we are optimistic about the subscription revenue, the subscription margins that we will have, and that they will continue to play out to be very strong in the 80% range. So I'm feeling good about where our subscription revenue is.

And then I would also add is, we are seeing continued positive momentum on these new commercial models like MSP and others, and those have a higher margin impact as well. And those will play out into the model over the next year or so. So I'm very bullish about the subscription margin story that we have as a company and our focus there for several quarters and even years out at this point.

I feel like we are on a very good path there. And we'll recover these costs that we've seen, these one-time costs, if you will that have come in other components over the next couple quarters. But I do believe, as we said earlier, we'll get back to that 64% to 66% gross margin target (multiple speakers)

Can I ask one follow-up, Ed? Have you shared with the market kind of the BOM that's related to either optics and/or memory? Is it like 5% to 10% of a typical switch BOM that is impacted by these rising component costs?

We haven't shared that. I'm sure I can get it for you, Dave, and circle back separately on it. But we haven't shared what the percentage of the BOM is for memory, for components, etc. I don't know if we'll share it, but we'll certainly look into it for you.

Great, thank you.

Yeah, sure.

Eric Martinuzzi, Lake Street Capital Markets.

I wanted to revisit the guide for the second quarter and specifically, that the low end would actually be sequentially down from the first quarter revenue. I was wondering if -- were there any pull-forwards out of Q2 into Q1 as far as the large deals that you won?

Not on the revenue side, Eric. We had some bookings that came in at the end of the quarter ahead of the price increases. Those didn't make their way into the revenue actually, so it's kind of made its way more into backlog.

Okay, but I mean historically it would be up sequentially, that September versus December quarter. Was there just conservatism in the outlook and kind of (multiple speakers)?

I mean at the midpoint, you've got an increase, right? So the $312 million versus the $310 million, I think you're referring to the range of $309 million versus $315 million.

Yeah.

So at the low end of the range, yes, it would be $1 million lower. At the high end of the range, it would be higher. The reality is we are expecting to continue to grow for our seventh sequential quarter in Q2 at the midpoint, at the $312 million.

So I wouldn't look at that necessarily as a message that we are expecting to go down in Q2 or Q1. From a range perspective, we're still optimistic about the business.

Yeah, and I think it's fair to mention, Kevin, that -- Eric, we had a very strong quarter in Q1. We had a lot of large deals come in and land in the quarter. And it started from the get-go. I would say linearity was very strong in Q1, starting with bookings in July, and I think we just had a very strong quarter there on the heels of our Q4.

Yeah, certainly good numbers, and I don't want to take anything away from a beat-and-guide-up quarter.

At this time, there are no further questions. I will now turn the call back over to Ed Meyercord for closing remarks.

Thank you, Rebecca, and thank you everyone for joining the call. As always, I know we have employees, customers, and partners that also kind of join in here. And we appreciate the partnership and the continued growth in our relationships.

We're excited to continue to build on our success. We're really looking forward to updating everybody at our Investor Day on November 10. And we're going to be able to take a deeper dive into the markets where we're playing, our technology, and our execution, and we'll be able to field all questions there. So we look forward to your participation there. Thanks everybody and have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.