Extreme Networks targets 10% revenue growth for fiscal 2026 as Platform ONE adoption accelerates

Earnings Call Insights: Extreme Networks (EXTR) Q1 2026

MANAGEMENT VIEW

* CEO Edward Meyercord highlighted that the first quarter delivered "our sixth consecutive quarter of revenue growth and third straight quarter of double-digit year-over-year increases." Meyercord reported "revenue reached $310 million, up 15% year-over-year, driven by competitive wins with large customers across all verticals." SaaS ARR rose 24% to $216 million, with notable traction in enterprise and government verticals. Meyercord stated, "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."
* Meyercord emphasized strong customer interest and early adoption of Extreme Platform ONE, which offers "agentic conversational and multimodal AI to transform networking, cutting routine tasks from hours to minutes." He noted expanded market penetration, including a major Asia Pacific government win and new partnerships in EMEA.
* Meyercord underscored strategic differentiation: "We're the only vendor in our space offering true cloud choice and deployment flexibility... many of our competitors are locked into public cloud-only and expensive purpose-built architectures."
* CFO Kevin Rhodes reported, "We achieved earnings per share of $0.22, exceeding the midpoint of our guidance range and consensus of $0.21 per share." Rhodes detailed "product revenue of $194 million grew 20% year-over-year and was up 1% sequentially in a traditionally seasonal slower quarter," and noted "36 customers spent over $1 million with Extreme, up from 34 last quarter and 27 in the prior year quarter."

OUTLOOK

* Rhodes guided Q2 2026 revenue to be "in the range of $309 million to $315 million; gross margin to be in a range of 61.4% to 62%, operating margin to be in the range of 13.4% to 14.6% and earnings per share to be in the range of $0.23 to $0.25."
* For fiscal 2026, the company expects "revenue to be in the range of $1.247 billion to $1.264 billion with some normal seasonality in Q3, followed by sequential growth in the fourth quarter." The midpoint "suggests 10% growth year-over-year."
* SaaS ARR growth is targeted in the "low 20% range for year-over-year growth. Recurring revenue is expected to be about 35% of total revenue in fiscal 2026."
* Management stated, "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."

FINANCIAL RESULTS

* Total revenue for the quarter was $310 million, a 15% year-over-year increase. SaaS ARR reached $216 million, up 24% year-over-year. Product revenue came in at $194 million, up 20% year-over-year.
* Non-GAAP gross margin was 61.3%, impacted by "industry-wide increases in component costs, such as memory, metals, including copper and aluminum and other semiconductor parts." Operating margin reached 13.3%, up from 12.4% in the prior year quarter.
* Rhodes stated, "We generated $45 million in EBITDA, up 21% year-over-year." Free cash flow usage of $21 million was attributed to "onetime payments associated with certain -- finalizing certain legal matters."
* The company repurchased 577,000 shares for $12 million and ended the quarter with $209 million in cash. The cash conversion cycle improved to 60 days from 81 days in the previous quarter.

Q&A

* Michael Genovese, Rosenblatt Securities: Asked about component price increases and gross margin recovery. Meyercord responded, "We've seen prices in memory and optics shoot up in the near term," with a "mid-single-digit price increase" expected to impact Q3 and Q4, supplemented by supply chain initiatives. Rhodes added, "We saw industry price increases go into effect... that gave us... license to also raise price."
* Genovese also inquired about federal exposure and competitive dynamics. Meyercord said, "the shutdown for us has had little to no impact on our business... we're seeing much larger opportunities open up on the federal side." On competition, Meyercord noted "a lot of confusion" at HPE/Juniper and disruption at Cisco, highlighting opportunities for Extreme due to "channel disruption."
* Ryan Koontz, Needham & Company: Sought updates on Platform ONE traction and MSP growth. Meyercord said it's "early innings" but with "high adoption" and excitement, expecting more customer migration by end of the year. Rhodes confirmed "ahead of our expectations in the quarter."
* Dave Kang, B. Riley: Probed margin headwinds and pricing. Rhodes confirmed about 100 bps impact from component costs, with price increases to offset. On FX, Rhodes said, "Very little. We hedge our balance sheet."
* Christian Schwab, Craig-Hallum: Asked about long-term gross margin targets. Rhodes stated, "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."
* David Vogt, UBS: Asked whether further price hikes might be needed. Meyercord replied, "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."
* Eric Martinuzzi, Lake Street: Questioned Q2 guide and sequential revenue. Rhodes clarified, "At the midpoint, you've got to increase," emphasizing confidence in continued sequential growth.

SENTIMENT ANALYSIS

* Analysts focused on gross margin headwinds, pricing actions, and competitive disruption, with a slightly cautious but constructive tone. Questions on component costs and guidance were probing but not overtly negative.
* Management maintained a confident and proactive tone, especially on margin recovery and competitive differentiation. Meyercord used phrases such as "We feel very confident" and "we're excited about the channel disruption there."
* Compared to last quarter, analyst tone shifted slightly more toward risk assessment (margins, competition), while management’s confidence remained strong, particularly regarding growth, technology, and strategic positioning.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for fiscal 2026 increased to a "10% growth year-over-year" compared to previous quarter's lower revenue range. Gross margin guidance reflects near-term component cost pressure but maintains a long-term target (64% to 66%).
* Platform ONE adoption moved from "early availability" last quarter to "well ahead of our expectations" this quarter, with broader customer feedback and pipeline strength.
* The number of $1 million-plus customers grew to 36 from 34 in Q4. MSP partners increased to 61 from 53 last quarter.
* Analysts’ focus shifted from regional performance and early Platform ONE traction to detailed questions on margins, pricing, and competitive dynamics.
* Management continues to stress technology differentiation and competitive wins, with increased emphasis on disruption at competitors as a growth lever.

RISKS AND CONCERNS

* Component cost inflation (memory, optics, metals) is impacting gross margins, addressed through price increases and supply chain tactics.
* Management cited "onetime payments associated with certain legal matters" as impacting free cash flow.
* Competitive risks remain, especially with ongoing changes at HPE/Juniper and Cisco, but management sees these as opportunities.
* Minimal FX impact due to hedging strategies.

FINAL TAKEAWAY

Extreme Networks’ management projects an inflection point for fiscal 2026, targeting 10% revenue growth and further acceleration as new solutions like Platform ONE gain traction. Margin pressures from component costs are being counteracted by price increases and supply chain actions, with expectations for gross margin recovery by year-end. The company cites strong competitive differentiation, particularly in AI-driven networking and flexible cloud offerings, positioning itself to benefit from market disruption and to move further upmarket with larger enterprise and government customers.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/extr/earnings/transcripts]

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