Company Overview - Extreme Networks (NASDAQ: EXTR) is identified as an undervalued and overlooked company that is working on significant developments that could surprise the market [1] Investment Philosophy - Henriot Capital operates on the principle that simplicity and common sense drive investment success, focusing on building a hedge fund with a clear purpose and disciplined approach [1] - The investment strategy is fully quant-driven, relying on a model that provides stock recommendations without human interference, emphasizing data-driven decisions [1] Investment Approach - The motto "invest first, investigate later" reflects the company's strategy of purchasing stocks based on model suggestions and conducting further research afterward [1] - This approach aims to minimize individual bias in stock selection, ensuring that investment decisions are based on quantitative data [1]

Market Overview - The total addressable market for Extreme's Enterprise Networking solutions is estimated to exceed $47 billion, growing at approximately 13% annually over the next five years[146]. - The cloud networking segment is projected to be an $11 billion market, growing at 14% annually over the next five years[150]. - The networking and infrastructure market for enterprise and service provider applications is valued at over $36 billion[146]. - The company aims to expand its market penetration by targeting high-growth segments, particularly in cloud networking, which is expected to outpace on-premises managed networking growth[155]. Product and Technology - Extreme's Platform ONE integrates networking, security, and AI solutions, aiming to reduce complexity for enterprises[148]. - The company anticipates that its AI-powered automation will enhance productivity for networking, security, and business teams[148]. - ExtremeCloud IQ provides unified cloud-native management driven by AI and ML, streamlining operations and delivering actionable insights[152]. - The company has introduced the Extreme AI Expert, a GenAI solution designed to optimize networks and improve issue resolution times[152]. - The company is set to launch Extreme Platform ONE in the second half of calendar year 2025, integrating networking and security with AI[153]. - Extreme's cloud management platform conforms to ISO/IEC standards for data privacy and protection, ensuring high security for customers[150]. - The company offers flexible consumption options for its services, including public, private, and hybrid cloud solutions[152]. - Extreme's strategy focuses on delivering a differentiated end-to-end cloud networking architecture to enhance customer outcomes[147]. Financial Performance - Net revenues for Q2 fiscal 2025 were $279.4 million, a decrease of 5.7% compared to $296.4 million in Q2 fiscal 2024[155]. - Product revenues decreased by $14.4 million or 7.7% for Q2 fiscal 2025 compared to Q2 fiscal 2024, and by $105.5 million or 24.0% for the first six months of fiscal 2025[157]. - Subscription and support revenues decreased by $2.7 million or 2.4% for Q2 fiscal 2025, but increased by $4.6 million or 2.2% for the first six months of fiscal 2025[158]. - Total gross margin improved to 62.7% of net revenues in Q2 fiscal 2025, compared to 61.9% in Q2 fiscal 2024[155]. - Operating income for Q2 fiscal 2025 was $12.7 million, up from $10.3 million in Q2 fiscal 2024[155]. - Cash flows from operating activities were $40.1 million for the first six months of fiscal 2025, down from $109.9 million in the same period last year[155]. Expenses and Costs - Research and development expenses increased by $2.1 million or 3.9% for Q2 fiscal 2025 compared to Q2 fiscal 2024, primarily due to higher personnel costs[165]. - Total operating expenses decreased by 6.1% to $162.5 million in Q2 fiscal 2025 compared to $173.1 million in Q2 fiscal 2024[163]. - Research and development expenses decreased by $1.5 million or 1.4% for the six months ended December 31, 2024, primarily due to a $5.8 million decrease in contractor costs[166]. - Sales and marketing expenses decreased by $15.7 million or 8.9% for the six months ended December 31, 2024, mainly due to a $12.4 million decrease in personnel costs[169]. - General and administrative expenses increased by $13.4 million or 27.2% for the six months ended December 31, 2024, primarily due to an $8.8 million increase in legal costs related to litigation matters[172]. - Restructuring and related charges were recorded at $2.3 million for the six months ended December 31, 2024, primarily consisting of severance and benefits costs[173]. Cash Flow and Debt - The company reported net cash provided by operating activities of $40.1 million for the six months ended December 31, 2024, despite a net loss of $3.1 million[196]. - Cash and cash equivalents increased to $170.3 million as of December 31, 2024, compared to $156.7 million as of June 30, 2024[186]. - The company had $50.3 million available for share repurchases under the 2022 Repurchase Program as of December 31, 2024[187]. - As of December 31, 2024, the company had $185.0 million of debt outstanding, with an average daily outstanding amount of $197.3 million during the quarter[209]. - Cash flows used in financing activities for the six months ended December 31, 2024 were $14.0 million, primarily due to payments for taxes and debt financing costs[199]. Foreign Exchange and Commitments - Foreign exchange forward contracts not designated as hedging instruments had a notional amount of $55.0 million as of December 31, 2024, compared to $15.6 million in 2023[212]. - For the six months ended December 31, 2024, the company recognized foreign currency transaction net gains of $1.4 million, compared to net losses of $0.3 million for the same period in 2023[212]. - The company had non-cancelable commitments to purchase $29.5 million of inventory as of December 31, 2024[204]. - The company expects to honor inventory purchase commitments within the next 12 months[204]. - The company had contractual commitments of $21.5 million due through fiscal year 2027 as of December 31, 2024[205].

Core Viewpoint - Extreme Networks reported quarterly earnings of $0.21 per share, exceeding the Zacks Consensus Estimate of $0.18 per share, but down from $0.24 per share a year ago, indicating a 16.67% earnings surprise [1] - The company generated revenues of $279.36 million for the quarter, surpassing the Zacks Consensus Estimate by 0.22%, but down from $296.38 million year-over-year [2] Earnings Performance - The company has surpassed consensus EPS estimates two times over the last four quarters [2] - The earnings surprise for the previous quarter was 41.67%, with actual earnings of $0.17 per share compared to an expected $0.12 [1][2] Stock Performance - Extreme Networks shares have declined approximately 2.9% since the beginning of the year, while the S&P 500 has gained 3.2% [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6] Future Outlook - Current consensus EPS estimate for the upcoming quarter is $0.18 on revenues of $279.6 million, and for the current fiscal year, it is $0.76 on revenues of $1.12 billion [7] - The outlook for the industry, particularly the Computer - Networking sector, is favorable, ranking in the top 35% of Zacks industries, which historically outperforms the bottom 50% by a factor of more than 2 to 1 [8]

2Q25 Financial Results January 29, 2025 DISCLAIMER Non-GAAP Financial Measures FINANCIAL RESULTS © EXTREME NETWORKS, INC. ALL RIGHTS RESERVED. 3 This presentation includes certain financial measures that are not presented in accordance with generally accepted accounting principles in the United States ("GAAP), such as, among other things, Non-GAAP Gross Profit, Non-GAAP EPS, Free Cash Flow, Non-GAAP Gross Margin, Non- GAAP Operating Margin, Net Cash (Debt), Non-GAAP Operating Income (Loss), EBITDA, Non-GAAP ...

Financial Performance - Total revenue for Q2 FY2025 was $279.4 million, down 5.7% year-over-year, but up 3.8% quarter-over-quarter[5] - GAAP diluted EPS for Q2 was $0.06, compared to $0.03 in the same quarter last year, and a loss of $0.08 in the previous quarter[5] - Non-GAAP diluted EPS was $0.21, down from $0.24 year-over-year and up from $0.17 quarter-over-quarter[5] - For Q3 FY2025, the company targets total net revenue between $276.0 million and $284.0 million[13] - For the full fiscal year 2025, total net revenue is targeted between $1,120.0 million and $1,138.0 million[15] - GAAP revenues for Q2 2024 were $279.355 million, a decrease from $296.377 million in Q2 2023, representing a decline of 5.4%[44] - Non-GAAP gross profit for Q2 2024 was $177.190 million, compared to $185.176 million in Q2 2023, reflecting a decrease of 4.3%[44] - Non-GAAP operating income for Q2 2024 was $41.153 million, up from $43.932 million in Q2 2023, indicating a decline of 6.3%[44] - GAAP net income for Q2 2024 was $7.382 million, compared to $3.988 million in Q2 2023, showing an increase of 85.0%[45] - Non-GAAP net income for Q2 2024 was $28.573 million, down from $31.475 million in Q2 2023, a decrease of 9.1%[45] Cash Flow and Assets - The company generated net cash flow from operations of $21.5 million and free cash flow of $16.1 million in Q2[11] - Cash and cash equivalents increased to $170,322 thousand as of December 31, 2024, from $156,699 thousand at the end of June 2024, marking an increase of 8.3%[23] - The company reported a net cash provided by operating activities of $40,118 thousand for the six months ended December 31, 2024, down from $109,865 thousand in the same period of 2023[27] - Total current assets increased to $495,289 thousand as of December 31, 2024, compared to $466,926 thousand as of June 30, 2024, an increase of 6.1%[23] Expenses and Liabilities - Research and development expenses for the six months ended December 31, 2024, were $109,334 thousand, slightly down from $110,849 thousand in the same period of 2023[25] - Total liabilities increased to $1,029,736 thousand as of December 31, 2024, compared to $1,017,312 thousand as of June 30, 2024[23] Margins and Profitability - The gross margin for Q2 was 62.7%, an increase from 61.9% year-over-year[9] - Non-GAAP gross margin percentage for Q2 2024 was 63.4%, an increase from 62.5% in Q2 2023[44] - Non-GAAP operating margin for Q2 2024 was 14.7%, slightly down from 14.8% in Q2 2023[44] Future Expectations - The company expects better than seasonal revenue for Q3, with improved cash flow generation anticipated[4] - The company has excluded certain items from its non-GAAP financial measures, which include share-based compensation and amortization of intangibles, to provide additional insight into its operations[19] - The company expects to incur share-based compensation expenses in future periods, which are non-cash and not reflective of ongoing cash requirements[35] New Initiatives - The company introduced Extreme Platform ONE, integrating networking, security, and AI to enhance productivity[3]

Company Overview - Extreme Networks, Inc. (NASDAQ: EXTR) is the second-largest cloud networking service provider globally, following Cisco, which is the largest in the industry [1]. Product Offering - The company's primary solutions include the flagship ExtremeCloud IQ platform, which leverages AI and automation to enhance its service offerings [1]. Analyst Background - The analysis is conducted by a financial analyst with a decade of experience in investment banking, specializing in industry and company research, particularly in technology, infrastructure, and internet services sectors [1].

Industry Overview - The Zacks Computer - Networking industry is experiencing growth driven by increased focus on cloud computing, network security, big data, and cloud storage, particularly amid the rapid proliferation of AI technology [1] - Companies in this sector are capitalizing on the multi-billion-dollar AI infrastructure opportunity, with the accelerated deployment of 5G enhancing the demand for solid networking infrastructure [1][4] - The industry comprises firms that provide networking and Internet-connected products, including wireless, Ethernet, and powerline solutions, with a focus on dependability and ease of use [2] Trends Influencing the Industry - The rise of smart home and Internet-connected products is driving innovation in networking technologies, with a growing demand for efficient network support infrastructure fueled by the proliferation of IoT and cloud computing [3] - The rapid deployment of 5G is creating opportunities for network-intensive applications, necessitating substantial investments in infrastructure upgrades to support data services [4] - The upcoming Wi-Fi 7 upgrade cycle is expected to drive momentum in the industry, addressing spectrum shortage issues and supporting a higher number of connected devices [5] Economic Conditions - Global macroeconomic weakness and volatile supply-chain dynamics are persistent concerns for the industry, with inflation potentially affecting spending across small and medium-sized businesses [6] Industry Performance - The Zacks Computer - Networking industry is ranked 47, placing it in the top 19% of over 250 Zacks industries, indicating bright near-term prospects [7][8] - The industry's aggregate earnings outlook is positive, with 2024 earnings estimates improving to $2.70 from $2.68 as of July 31, 2024 [9] Stock Market Performance - The industry has underperformed the S&P 500 and the broader Zacks Computer and Technology sector over the past year, gaining 18.2% compared to the sector's 36.3% and the S&P 500's 29.4% [11] Valuation Metrics - The industry is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 19.38X, below the S&P 500's 22.71X and the sector's 27.55X [13] Company Highlights - **NetScout Systems (NTCT)**: Focused on performance management and cybersecurity solutions, with expected revenues of $800-$830 million for fiscal 2025 and a Zacks Rank 1 (Strong Buy) [14][15][16] - **Intrusion Inc. (INTZ)**: A cybersecurity company with a strong uptake of its Intrusion Shield technology, reporting a 2.5% year-over-year revenue increase to $1.5 million in Q3 2024 [18][19][21] - **Extreme Networks (EXTR)**: Provides AI-driven cloud networking solutions, with a 23% year-over-year increase in SaaS annual recurring revenues in Q1 fiscal 2025, and expects revenues of $273-$283 million for Q2 fiscal 2025 [23][24]

Core Viewpoint - Extreme Networks (EXTR) has seen a 6.3% increase in share price over the past four weeks, closing at $16.10, with a potential upside of 25.8% based on Wall Street analysts' mean price target of $20.25 [1][9] Price Targets and Analyst Estimates - The mean estimate consists of four short-term price targets with a standard deviation of $2.60, indicating variability among analysts [2] - The lowest estimate is $16.50, suggesting a 2.5% increase, while the highest estimate is $22.50, indicating a potential surge of 39.8% [2] - A low standard deviation signifies a high degree of agreement among analysts regarding the stock's price movement direction [7] Earnings Estimates and Market Sentiment - Analysts have shown increasing optimism about EXTR's earnings prospects, with a strong consensus on higher EPS estimates, which correlates with potential stock price increases [9][10] - The Zacks Consensus Estimate for the current year has risen by 5.9% over the past month, with two estimates increasing and no negative revisions [10] - EXTR holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimate factors, indicating strong potential for upside [11]

Market Overview - The total addressable market for Extreme's Enterprise Networking solutions is estimated to exceed $47 billion, growing at approximately 13% annually over the next five years[88]. - The cloud networking segment is projected to be an $11 billion market, with an annual growth rate of 14% over the next five years[94]. Cloud Solutions and Technology - Extreme's cloud management platform, ExtremeCloud IQ, provides unified management driven by AI and ML, enhancing operational efficiency and reducing time to resolution[91]. - The company emphasizes a hybrid approach, offering customers the choice of public or private cloud, or on-premises solutions, ensuring flexibility and adaptability[94]. - Extreme's AI capabilities, including the recently introduced Extreme AI Expert, aim to optimize network performance and improve mean time to resolution for technical issues[95]. - The company leverages machine learning and AI to enhance network management and automation, addressing the complexities of modern distributed networks[85]. - Extreme's cloud solution integrates machine learning and analytics to deliver actionable insights, helping customers reduce costs and streamline operations[84]. - The company aims to provide a differentiated end-to-end cloud architecture, enhancing visibility, intelligence, and assurance across the network[94]. - Extreme's networking technology is designed to support the increasing complexity of networks, driven by the rise of distributed workforces and cloud-based applications[85]. - The company focuses on delivering a simple and easy-to-manage enterprise networking platform, positioning itself against competitors with complex solutions[90]. Financial Performance - Net revenues for Q1 fiscal 2025 were $269.2 million, a decrease of 23.8% from $353.1 million in Q1 fiscal 2023[98]. - Product revenues fell to $162.3 million, down 36.0% from $253.5 million in the same period last year[101]. - Subscription and support revenues increased to $106.9 million, up 7.3% from $99.7 million in Q1 fiscal 2023[98]. - Total gross margin improved to 63.0% compared to 60.3% in Q1 fiscal 2023[99]. - Operating loss was $4.7 million, a decline from operating income of $35.9 million in Q1 fiscal 2023[99]. - Net loss for the quarter was $10.5 million, compared to net income of $28.7 million in the prior year[100]. - Cash flows from operating activities were $18.6 million, down from $75.6 million in the same period last year[100]. - Research and development expenses decreased by 6.1% to $54.5 million compared to $58.0 million in Q1 fiscal 2023[105]. - Sales and marketing expenses decreased by 11.5% to $81.4 million from $91.9 million in the prior year[107]. - General and administrative expenses increased by 53.3% to $36.6 million, primarily due to litigation charges and system transition costs[108]. Tax and Cash Flow - The income tax provision for the three months ended September 30, 2024, was $1.5 million, a decrease from $4.6 million in the same period of 2023[116]. - Cash and cash equivalents as of September 30, 2024, totaled $159.5 million, up from $156.7 million as of June 30, 2024[118]. - Net cash provided by operating activities for the three months ended September 30, 2024, was $18.6 million, significantly lower than $75.6 million for the same period in 2023[121]. - Net cash used in investing activities was $6.9 million for the three months ended September 30, 2024, compared to $4.3 million in the same period of 2023[121]. - Net cash used in financing activities was $9.1 million for the three months ended September 30, 2024, a substantial decrease from $81.5 million in the same period of 2023[122]. Debt and Commitments - As of September 30, 2024, the company had $187.5 million of debt outstanding, with an average daily outstanding amount of $196.7 million during the quarter[125]. - The company had non-cancelable commitments to purchase $37.3 million of inventory as of September 30, 2024[123]. - Foreign currency transaction losses were $1.4 million for the three months ended September 30, 2024, compared to gains of $0.5 million in the same period of 2023[128]. - The company had $50.3 million available under the 2022 Repurchase Program as of September 30, 2024[118]. - The average interest rate on the company's debt was 7.52% as of September 30, 2024[126].

Core Insights - Extreme Networks' recent quarterly report indicates potential stabilization in the business, with stock prices rising by 13.9% following the announcement [1] Financial Performance - For Q1 of fiscal 2025, Extreme Networks reported non-GAAP earnings per share of $0.17 on revenue of $269.2 million, surpassing analyst expectations of $0.13 per share and revenue of approximately $261.3 million [3] - Revenue experienced a decline of 23.8% year-over-year but showed a sequential increase of 4.9% compared to the previous quarter [3] - The company's annualized recurring revenue for software as a subscription (SaaS) reached $174.1 million, reflecting a year-over-year increase of 23.4% and a sequential quarterly increase of 4.3% [3] Future Guidance - For Q2 of the current fiscal year, Extreme Networks projects sales between $273 million and $283 million, indicating a potential sales decline of about 6% year-over-year but a sequential increase of approximately 3% [4] - Management anticipates an adjusted gross margin between 62.2% and 63.2% for the current quarter, compared to 63% in Q1 of this fiscal year and 62.5% in Q2 of the previous year [5] - Adjusted earnings per share for the current quarter are expected to range between $0.16 and $0.20, which would represent a 25% year-over-year decline but a 6% increase over the previous quarter's earnings [6]