For coming in and kicking off the conference here. Extreme Networks is a company that we think has extremely good prospects over the longer term. Needs to come out of the trough that we're in right now in the industry. Be interesting to see what Cisco reports later this week. The last quarter that was reported, the March quarter, was pretty dismal. The company posted a loss of $0.01 ahead of our forecast, but still a loss of $0.20 or so. Revenues were down 36%. But that's really not the story. The story is that this is a boom-bust cycle around the supply chain, and we're at the trough of the cycle, and going forward, we should see significant improvement.
Moreover, if you look underneath the surface, while the top line in the EPS was not something you'd want to write home about, there was a lot of good stuff. The SaaS ARR was up 38%. New logos grew at a double-digit rate. The channel inventories, which are part of that boom bust, down $40 million -$50 million. The pipeline strengthened, up 10%. But the goal is above one, right? I think we're gonna see improvement pretty much sequentially throughout the year. The company guided to $0.11-$0.15 profit in the June quarter, putting in the fiscal year ending June at $0.52. We've got them going to $0.74 in FY 2025, and FY 2026.
Remind you, it's a June fiscal year. Stock selling at about 12 times EBITDA on 25 numbers, and frankly, I think that there's a lot of upside to the book, the revenue, and on the margin side of the equation. So we have today Stan Kovler is IR, and Kevin Rhodes, who's CFO. Kevin started almost exactly a year ago.
Yes.
Probably the worst time to start as a new guy in an industry, given the incredible tumult in this category. Kevin, you want to give me a... Give a little bit of background on this one?
Sure, sure. I'm happy to, Alex. Yeah, it, it, I... How do you cram five years into one year, right, of experience? I'm traditionally a SaaS CFO, so I live in the Boston area. Most of the companies that I've been a CFO for, public companies or private companies, I've been in the SaaS space. This was an intriguing opportunity for me because I felt like the hardware, which was, is very good and everybody really likes it, but that's not the differentiator, if you will, in the industry. The reality is, what is the software? What's the software cloud that runs the hardware, and what's the security, and what's the AI underneath it?
In talking to the management team, talking to Ed Meyercord, our CEO, I felt like there was a real opportunity for us to SaaSify the business more. And that was the opportunity that I saw a year ago, and as you can see, it's starting to play out a little bit more. We are very much focusing on driving more, I'll call it, platform and more software around the hardware that we have, but adding a lot more value across security, AI, and networking across the board. And some of that is really driving, you know, data and data analytics on your network as well.
The question I think most people wanna answer, in this meeting is, where are we in the cycle?
Sure.
And how do we get from here to a better environment? What is the kind of progression as we move forward into the June quarter? Why is the June quarter not, you know, fully back, you know, to normal? And does it get there in the back half of the year? So maybe if you could address a little bit of the dynamics of, you know, what happened last year in terms of the boom part of it-
Sure.
-and why we're at the bust part of it, and what's causing the pressures in the business, short term?
Sure. Yeah, I'm happy to. So if we go back to the COVID era, there was a lot of supply chain constraints because a lot of lay manufacturers were not in business at that point. A lot of orders got put in to a number of different suppliers. Those orders built up, built up, built up, which is a huge amount of backlog. We put our orders in with those ODMs. When you can give me supply, these are the orders that I see, so go ahead and get me that supply. It might take 12 months or even 18 months to get that, but I've got these orders in place. Let's make that happen. What happened is, as those orders built up and as we put those orders in with our suppliers, then we started to get the supply. Problem is, there's only so many installers.
So now all of a sudden, you've got all this supply coming in, and so many people are actually absorbing, if you will, the inventory and getting it as they've been waiting for a year or so to get that inventory installed within. But you don't have enough people to actually install it. And so that backlogged a little bit of just how people could actually take the inventory in over time. Meanwhile, we've got these orders coming in. There were some cancellations that came through, and they were primarily on the distie side, not on the end customer side. Disties wanted to get in line to make sure that they were getting their inventory as well. I think the long and short of it all was, as we were getting supply in, we had all these orders, so we could fulfill them readily and very quickly.
Think about that about last year in FY 2023. And then as that backlog started to come down, as we saw it, you know, we also saw in the marketplace that there was a lull in demand. And so, you know, as CPI increases and inflation and just in general, I'll call it malaise, that occurred within the overall market, we saw orders come down, and as orders came down, we still had the inventory coming our way. And so we just had to manage through that over the last 12 months.
I think in the March quarter, you talked about $50 million worth of inventory cleared out of the channel.
Yeah.
But you also said that there was still some left over, and I think that that's a little bit of variance from the guide into the March quarter. You thought you were gonna be completed in the March quarter. What, $10 million -$12 million left, inventory?
About $10-15 million, yeah. So what we've... Yeah, what we said is $40-50 million in Q3. We thought that would be it. As we come into Q4, we're like, "Yeah, there's probably another $10-15 million that still needs to get through." So we were at the high end of that range, but when we originally estimated $40 million -$50 million, it's more like $50 million -$65 million. And at the end of the day, we'll get through that in Q4.
So are you confident that there's another $10 million or $15 million hiding somewhere that is gonna come out in the September quarter?
Is there... Am I confident that there's another $15 million hiding? I don't think it's hiding anywhere.
Well, you underestimated by $10 million -$15 million into the June quarter, so-
Yeah.
How do we know that that's not gonna happen again in the September quarter?
We have good visibility at quarter out. We have good visibility into Q4 right now, feeling confident about what we came out with. And then looking into 2025, a couple things. One, pipeline's building. It built in the quarter. A few trends that really were positive for us that we saw in the third quarter, despite revenue being lower, right? You talk about book-to-bill. Yeah, it's pretty easy to do, but we're also thinking we'll have a book-to-bill higher than one in Q4, so that's building backlog for the future. I think the second thing is the pipeline, right? Not only are we generating more you know, new logos, but we are also seeing a build in the pipeline as well, so that's a positive trend that we're seeing.
Obviously, the market's also helping us a little bit right now, right? You know, I mean, Cisco's gonna be distracted with Splunk and the integration with Splunk, and that's gonna be a challenge for them. You've got HP and Juniper also in the marketplace, where they've both got roadmaps, but no one's really said what roadmap's gonna win right now. And so you've got a lot of confusion in the marketplace as to what or if you buy something, will it be around or supported in the next two or three years? That's a challenge for people in the buying cycle when they expect the hardware, you know, and the services, you know, to support that hardware to be around for the next five to seven years.
So there's a lot of, I would just say, uncertainty in the market right now that people are looking at. We're a pure play networking company that we're not gonna, you know, basically move away from our roots, and so they look at it as Extreme as a, as an opportunity.
So one of the other things you called out on going into the June quarter is that you did see some weakness in Europe.
Mm-hmm.
particularly in Germany. Can you talk about what's going on in EMEA from your perspective? Maybe give us an update on conditions there.
Sure. We're, we're trying to be very transparent to what we're seeing in the marketplace, and EMEA was one of the areas where we felt a little bit more softness than we had expected. And when that starts to come back, we think that that will be a good opportunity for us to have growth. In particular, in the EMEA area would be Germany. Germany has had a, you know, two, well, they've, they've recorded two, you know, technical recessions. The government came out recently and said that they were shutting down a decent amount of the government spending, and we have a large government presence there as well. So I would say that's not going to happen and persist forever. It will come back.
The question is timing, and we think it's more or less the second half of the year. But I would say the calendar year, second half of the calendar year, I'm thinking more like September through December, as opposed to July, August. July, August, everybody's on vacation.
I don't remember, does Germany have a September fiscal year on the government? It's or a calendar year.
Calendar year. It's a calendar year, yeah.
Calendar year.
Calendar year.
Middle East impacting you at all?
No, not particularly. Actually, we have a good sales leader in the Middle East, and we've made some really good traction. For instance, the largest and tallest building in the world, Burj Khalifa, is an extreme customer, and there's a number of hospital systems that we've been picking up in the Middle East as well. I would say it's- that's a greenfield opportunity for us to take more share in, in the future. It's not a big presence for us right now.
So looking forward into, you know, 2025 calendar year and beyond, you do have a lot of competitive advantages. Your products are cloud driven, they're AI driven, they have significant advantages in terms of operational efficiency, anticipating problems before they happen. Very, very much like what Juniper had with their Mist product, way ahead of the Meraki capabilities in that sense. So how do you expect that product advantage to play out in terms of driving, you know, your growth rate longer term? Can you grow at 10%+ pace longer term, once you've normalized the conditions?
... We, we do think that we can grow double digits. I mean, obviously, the SaaS revenue and, and a couple of things here. One, with the growth, the normal growth in the market should come back to, call it 5%-6%. And we think that we could actually take market share, especially where the uncertainty exists in the market right now. We- I'm just coming off our annual user conference, where a number of customers were there, and some of those customers were split between either Cisco and Extreme, or, or HP and Extreme, or even Juniper and Extreme. And a lot of them were describing to us, "No, no, no, we're just gonna go 100% Extreme at this point.
We don't wanna deal with the uncertainty of, of those three companies." So I'm hearing in the marketplace right now that people are interested in trying to go our way. I think that's gonna bode well from a hardware sales recovery perspective. And then later this year, kind of in our end of this calendar year, we're moving to principal attach. So principal attach, right now, we attach about 65% of the time our software to our hardware sales. But we are moving in a direction where 100% of our hardware sales will have to have cloud subscriptions associated with them. We are also introducing a good, better, best program that will enable us to have upsell, upsell.
There's a base level of software you get, and then there's an increased level of software that you can buy into that today doesn't exist, but we will get, you know, higher, higher revenue from that in the future.
So before the issues hit the fan over the last couple of quarters, there was a very strong margin expansion story here-
Mm-hmm
... driven by two issues. One, the improvement in the supply chain costs, and then second, the movement to what is called the Universal Platform.
Right.
So-
Right.
The company was born out of a consolidation of four, five, six companies, and you made the right decision not to force them over to a singular platform upfront.
Yes.
Very expensive to do that, but carried them, until you could merge them all onto a single platform without undermining any of the features that the people initially bought into-
Mm-hmm
so that they wouldn't leave. You're now at that point with the Universal Platform. Instead of having five platforms, you're one.
Mm-hmm.
I think, if I remember correctly, 60% of revenues and 90% of forward orders are on that platform.
That's right.
What's the advantage to the cost side of the equation? That it's 100-200 basis point potential improvement?
Yeah, I mean, right now. So let's look at these. So remember, our range, our long-term range is 64-66, right? We just guided in Q4, 61.6-63.6. So the high end of our range is creeping up to the low end of the long-term range. So I do have confidence that we can get there. How are we gonna get there? Well, there's a few things. One, a mix shift, right? As we have more... So we are selling, for instance, premier services at a much higher margin. Services generally for us is in the high 60s, low 70s. Then we have subscription attach. That's also gonna get-
30% growth and 70% gross margin product will help your margins?
Precisely. That's part of the model, right? And then to your point, Alex, we will continue to streamline some of the costs out of the hardware and improve our hardware margins over time. Some of that's just literally the cost of the hardware and being more efficient on components. You know, during COVID, you know, a screw was costing me five pennies. Now it's a fraction of a penny. And so as the supply chain is eased, we can get better component costs. And then also, sea freight versus air freight, there's a shift there as well right now that's got a cheaper freight for us to get the product in. So there's a number of costs that we can see coming down over time that's gonna help our margin profile.
Yes, and volume is gonna help us as well, too, right, Alex? So right now, the volume, as you said, we're kind of bouncing along more the trough of the cycle. As the volume recovers, that'll be a big part of that story as well.
We can negotiate more component costs there.
Yeah.
So-
It's a good point.
... I kind of view the company as, almost like a semiconductor stock in traditional terms. You know, when do you buy a semi? I reminded myself that somebody bought the semiconductor index the day Lehman went belly up and made 30% before the market, you know, rebounded in March of 2009. So I guess the question is, as we look forward, we talked about the revenue growth reaccelerating, we talked about the gross margins, but I think the more important piece of the equation is the opportunity to, you know, expand distribution, the ability to win more business, get more at bats. You've moved from the lower left quadrant on the Magic Quadrant from Gartner to ahead of Cisco, which is remarkable.
This year, ahead of Cisco.
And-
Yeah
... my sense is you're getting more distribution, more at bats. Can you talk a little bit about the sales channel opportunity that you see in front of you?
Yeah, there, there's a few things, right? So that, that is a, that is... I mean, a lot of people who are buying in this industry right now are looking at the Magic Quadrant as, as part of their purchase price. So I think one of our biggest challenges is just name recognition, right? Cisco is the old IBM. You don't get fired if you, if you, if you buy Cisco or IBM at that point. The reality is, they're lagging behind, and they're lagging behind... Like, for instance, Catalyst doesn't really work well with Meraki, and we've seen that in complaints from customers over and over again. We just won Korean Air, big, big Korean, you know, a big, big customer of Cisco for 31 years, and they just switched over to Extreme. 250 locations that we won there.
Big multimillion-dollar deal there. They, what we get is the sense it's like the Cisco fatigue, right? They're just frustrated with very high costs, very high renewals, pushing out, you know, increases across subscription, and the pricing is just very hard to manage. And so I think we have an opportunity with our simplified story, our pure play with security, as security becomes more relevant in networking, and we're starting to see a convergence of networking security coming from folks like us versus the over-the-top application providers in the world. And so we see that convergence starting to happen, and we think that we have a better opportunity to get a slice of the pie there.
Well, can you quantify, how many more bars you're talking to, what their feedback to you is, and to what extent, there's something that we can really grasp onto there? How many more at bats do you get,
Yeah
... you know, those type of things. What are the deal sizes doing?
There's a few things. One, to your point, to your question around the channel, right? We are adding more channel providers. We are actually hearing from HP and Juniper providers that they wanna talk to us to have an alternative.
They're coming to you as opposed to you having to go to them.
That's right. So MSP is new providers where we are enabling MSPs, and we don't really have a lot of MSPs in the past, so that's a new kind of vector of growth for us. The existing channel partners that are doing HP and Juniper are worried about which one is going to be the right one, and so therefore, let's have an alternative there. And then I would say we are also looking at larger, you know, resellers that we feel like we could get into. And for instance, the ESCO model is one that we can use to attract service providers and get service providers to start.
What, what about deal size?
Selling solutions.
I would assume that because of the improvements that you have, because of the scalability of your product, the deal sizes are tending to go up. Now, that may slow down the process time, but deal sizes are expanding, and I think in your guidance, you didn't include any large deals in the June quarter guidance.
That's right. That's right. Yeah. Yeah, I mean, we, we've been starting to talk about how many $1 billion-plus deals in a particular quarter. Last quarter we had 28, but normally it's around 35-40, so that gives you a little bit of indication. You know, when we start to see it get back to 35-40, we're gonna know that that's a good number for us from a product, you know, bookings perspective. From our perspective, we are seeing more traction in larger companies, and we are seeing in these RFP, you know, proof of concept tracks that we have with certain customers, where they might be spending, like a Kroger or others, where they're spending... You're doing a wholesale change of their networking infrastructure.
We're winning those deals because technology head-to-head, they actually love our fabric. They love the pricing we have on our cloud management. They love everything around the technology and how it elegantly, you know, works with the Universal Platform. But moreover, they love our support. I mean, it's weird, Alex, where you think, is support really a big differentiator? It can be. It really can be. So there's a lot of good reasons why these larger companies are looking at us and saying: "Wow, I really like Extreme. I didn't realize that you guys were as big, running FedEx, running the FAA." You know, some of the 29 of 31 of the NFL stadiums in the United States are run on Extreme.
Those are all good examples where people are like: "Guys, you guys are enterprise grade. I could absolutely use you across my entire large company." So it's exciting.
Yeah, I would say the identity of the company is changing a little bit. We used to be known for mid-market, you know, maybe K through twelve, right?
Right.
That was our bread and butter, and now we talk about million-dollar deals. Well, there's actually now a trend towards even eight-figure deals, right?
Yeah.
So that, that's how we know that we're moving up market, and it's part of the share gain story. Those are the key proof points. We could take a logo from some of the larger competitors with our solution. That's really what gives us confidence that we're moving up market and there's a recovery path to all of this.
From a strategic perspective, you're, you know, putting on your other hat, or do you think there's still additional tuck-ins that are eventually might be interesting?
Well, I have to do my job in corp dev, otherwise Kev, you know, Kevin's not gonna be happy. So we're always poking around and seeing what's out there. You know, we're interested in certain areas of the market where we can add to the growth in the addressable market. Security comes to mind. Maybe Private 5G comes to mind. Those are some of the more interesting areas that we're focused on. But there's nothing imminent on the table, so-
In this environment?
Yeah.
Yeah. We'll be prudent and pragmatic, is the way I would describe it, right? And so for right now, I'd like to see the recovery come back-
So-
Before we do anything.
... increasing efficiency in the channel, larger deal sizes, improving gross margins, seems like a pretty good dynamic. What's the impact on cash flow? And you currently have about $185 million worth of inventory on the balance sheet... If I look back to Q4 of 2022, fiscal year, you were at $50 million. Is there $100 million worth of, you know, cash coming out of inventory over the next year?
There's a couple things. One, first priority was to normalize distribution inventory, right? 'Cause if the distribution has too much inventory, they're not gonna buy from us, so that's a problem from a revenue perspective. So let's solve for that. Two, I've purchased all this inventory, and so now that's sitting on our books, and we can certainly, over the next year, I would describe, cash flow that inventory out. Whether it's $100 million, it's probably about right, about $90 million-$100 million of inventory. The good news is, it's all universal hardware that we've been buying, that we've been, you know, stocking in.
We can go and cash flow that out over the next year, and so that's just in addition to the revenue, revenue and profit generation that we get from the normal business operations over the next year. We'll also, you know, get higher cash flow from all that inventory. 'Cause I don't need to. I've slowed down my orders because of the inventory.
Is there a risk in any of that inventory that it takes too long to process through, maybe older SKUs?
Yeah
... Any risk that some of it might get written off?
There's always a risk, but I would say the reality is, we have managed this business for many, many years, and we know how to put the proper incentives in place if one needs to, in order to move the inventory. And we've not had a problem with that, you know, in a while. We did just, you know, show in Q3 where we have moved some operations out of, like, China and into Vietnam, and we basically discontinued a line and had some raw materials that we took out in Q3. But that's the only thing I could see us, you know, if something like that happened.
Your cash is going to improve. What does the rest of the balance sheet look like, and how should we be thinking about, you know, that over time?
Cash will improve. We had, I think we had said that, you know, or at least we expect cash to be about the same, if not slightly improved, in the fourth quarter over the Q3, you know, over the third quarter. But in 2025, I would expect it to be meaningfully pos-
So-
more positive than Q6 and 20.
So you've got $0.30 a share in net debt. What are your-
About $40 million, yeah.
Yeah, what, what are your plans?
$45 million.
Are you gonna buy back stock with that free cash flow? Are you going to pay down debt with that?
It could be a combination of both, but I would think about stock buyback first and foremost, as we think about the fiscal 2025 year as being in the market buying back stock.
And I'm gonna ask three more minutes of questions and give you guys a chance to ask some questions imminently. As I look forward beyond the current quarter, normally the September quarter is a seasonally softer quarter-
Mm
... but I think you guys have said, and tell me if I'm wrong, that you expect sequential growth throughout the calendar year. Is that accurate?
Yeah.
Or, or am I reading, remembering things wrong?
That's okay. So what we've said is Q4 will be certainly sequentially better than Q3. We believe Q1 could be sequentially improved over Q4 because that $10 million-$15 million we're working through in Q4 right now. Q2 tends to be
So that's-
... seasonally better than Q1.
Q1 is the September quarter, Q2 being the December quarter.
Exactly. And so and then we usually see a step down in Q3.
Mm.
And so I would say if we get to a better... You know, if we get to a normalized period of buying, I would say a step up from Q4 to from Q3, a step up again, a step up again, but then we could see it maybe flat to slightly down in Q3, and then up again in our Q4 next year.
If I were to look at a point in time, say, a year or so from now, and you were looking at normalized full-year earnings, are you a $1 per share kind of run company?
That's what we're gonna get back to. We were at $1.09 in 2023. And that's the laser focus right now, is how do we get back to at least $1, if not more, in the next two years? That's the focus.
Yeah, let me, let me stop there and see if there's any questions from the audience here. Oh, come on, guys, ask a question. Nope? Okay. So looking at, you know, you just had a major trade show event.
Mm-hmm
... you also announced some new products.
Mm-hmm.
Can you talk a little bit about, you know, what's new at Extreme?
Sure. You wanna, you wanna cover it?
Yeah, I can cover that. Thanks, Alex. So, one of the things that we announced was our generative AI, Gen AI, expert coming out of our Extreme Labs division. And so we're gonna focus on helping people solve a lot of their challenges in networking through Gen AI and license that. So I think that's the more interesting story here, is that we're gonna be providing multiple ways that you can license it through a good, better, best model, and really try to monetize that expertise that we can deliver from network. We had AI and machine learning in our networking technology before built in. We had a product called Copilot that helped people remediate problems and see what's going on. Now, this is our next step into Gen AI.
So that was one of the key focus areas. We doubled down on our Zero Trust network security value proposition. So this is combining what we already had, which was Network Access Control-
... now with next generation virtual private networking VPN, and combining it into one solution that we can license. So that was another development that we doubled down on, and we also had an announcement for outdoor Wi-Fi 6E. So as we think about our Wi-Fi capabilities, we had indoor, now 6E is outdoor. We were already out with our Wi-Fi 7 access points, so we're in that market as well. So that was sort of the focus of the show, Alex, just moving ahead, moving a lot of these solutions forward, and introducing customers to cloud-first AI security capabilities. That was the big focus of the show for us.
Looking at your ARR and SaaS revenues, I mean, 38% growth in SaaS deferred revenues last year, and continuing strong, you know, across the first half of this year. Can you talk about, you know, what kind of growth you think that can sustain? And I mean, even your net new ARR build has been robust.
Yeah. Yeah, this is the exciting story here because when you think about it, right, product itself can be somewhat variable over time with the market trends and whatnot. But when you look at our recurring revenue, it's been very stable. It's highly predictable, highly visible, and if we continue to grow that over the next three to five years, you're gonna see effectively us covering the entire cost of the company from an OpEx perspective in all of our recurring revenue, and then the product revenue ends up just being, you know, complete upside.
At the end of the day, that is a big focus for us as a company, is to continue to drive more and more value into the software components, charge more for the software components, get into security, take that slice of pie, and capture that ourselves, and continue to drive our recurring revenue as a company. That is the-
So-
... a big focus.
So what do you think you can grow that at? I mean,
We can-
It looks like your net new ARR this year will be up 50% or so. By our calculation, it's in excess of 30% growth of, you know, in the Cloud IQ, SaaS revenues.
We think in the 25%-35% range is where that growth is going to be over the next three to five years.
Well-
Yeah
... that's a pretty good chunk of change at that point.
Yeah
... it's becoming a large percentage-
Especially as we get to 100% attach, Alex, like, that's gonna be a mover unto itself.
Yeah, you wanna talk about that a little bit?
And then you've got higher-
You changed on with some of the new products that force that and require that. Do you think you're gonna get some pushback against that, or do you think that that'll be something that people will want to embrace?
We've talked to our resellers about this. We spent a lot of time, and we've been very careful about this. The reality is, we think that A, our resellers are applauding us for getting it going. B, the market is already conditioned for this. Many of our competitors are already doing this. They're requiring 100% attach across all their sales, and so, while we're a little bit laggard in that, we're just very, very customer friendly in the past, but we think that we're going to unlock a lot of value for our customers with the cloud attach. And most of the time, you see our customers buying more attach associated with access points than they do with switching, but we believe we can unlock a lot of value for them on the switching side as well.
So it's a natural progression for us as a company, and then with good, better, best, we'll unlock more software elements for the customers if they're in the better or best categories, and they'll still get very good improvements on the good side of things. So as SaaS is, we'll constantly see more and more improvements in the software over time, which they're excited about.
So we've got five minutes left. You guys got a question in the field here or no? No. Well, we'll continue on.
Okay.
You're fairly tight on sales and marketing and OpEx expense currently.
Mm.
As we look forward, I assume it's gonna stay that way until you recover somewhat, but on the other side of the coin, I'm pretty sure you guys wanna drive growth as well. So how do you balance that, and when should we anticipate spending might pick up? What metrics should we track to anticipate it?
So we talk about this at a management level. We talk about this at a board level. We took out some costs in Q3 as well to get ourselves back to profitability in Q4. That's not always easy to do, but we feel like it's the right thing. One, we did not hurt our innovation. Two, we did not hurt our go-to-market. And three, you can always kind of reorganize yourself in a different way and make sure you're more efficient going forward, and so that's the opportunity that we took, you know, in Q3. I think from our perspective, you know, on the OpEx side of things, we will be very pragmatic with incremental spend this next year in FY 2025.
I've pretty much laid down, you know, the rule with everybody that Q4 times four is the, you know, number that I expect people to live within from a budget perspective. If we start to overachieve next year, I'll open up a little bit more spend. You know, there are things that we- I think we can do from a go-to-market perspective if we have some incremental, you know, expenditure. But for right now, we're really focusing on getting back to a really healthy, you know, profitable EPS number.
So to put some numbers on that, I think you were, what, $133 and something like that in the June quarter is what we're estimating.
Mm-hmm.
I don't wanna put-
Mm-hmm.
Make, give you-
Yeah, about $133. Yep.
Yeah.
In the $133-$134. Yep, in that range.
And that's down from $153.
Yeah.
So you've taken, taken it down, you know, $20 million a quarter, and holding it kinda steady until you start to re-
Yeah. Yeah.
Pretty good improvement in margins-
Yeah
... associated with that.
Yeah.
Looking forward, would revenues accelerate before OpEx accelerates? Is that the right way to think about it?
Yes, that is exactly the right way to think about it. I mean, coming out of Q4 and getting to the midpoint $255, and then coming into, you know, our Q1 with hopefully a stair step up at that point, that will start to drive more profitability. But yes, that's our thought for at least right now. We do have a little bit... Like, you know, you've got merit increases, you've got, you know, bonuses reset in the new fiscal year. So we'll accrue for some of those things, but for the most part, from a headcount perspective, we're gonna be fairly flat.
What does labor inflation look like to you?
You know, in the marketplace, it's generally been around 3%-5% in the United States, and it's a little higher in India, probably more like 8%-10%. That's what we've seen across the board.
So if we were to sum up, in the last two minutes here-
Yeah
without me putting words in your mouth, what is the, you know, the game plan, and what's the outlook for the next 18-24 months?
Well, I'd say, first off, we're at the bottom, right? We're, we're definitely at the nadir in Q3. Things are gonna only go up from this point, so I feel confident in that, and I think I can speak across the entire management team that, you know, Q3 is, is the bottom. Q4, we would like to see that as the bottom for fiscal 2025, meaning that Q4 is the lowest quarter of any of the next five quarters. And so that's, that's also something that we are really striving to achieve. When we think about the market and the market coming back and all the disruption that's happening in the market right now, we do believe that we are poised really well to take market share across all the different leaders.
And I'd say the fourth thing is that now there's gonna be two large leaders, if you will, in the marketplace between Cisco and HP as they go and buy Juniper, assuming that happens. And then we're the only pure play. You've got Green Lake, you've got Splunk, you've got distraction across all of that, and then you've got us as the pure play. If you're looking for someone who's just going to make your network work and sing and work really well, Extreme will be the third player out there that everybody's gonna look to, which we think is exciting. And then you add security, you add AI on top of that, and I think those are two elements that we are bringing forth in this fiscal 2025 that I think people are gonna see as even more appealing.
25%-35% growth in SaaS subscriptions.
And there's that.
... expanding gross margins and further operating leverage. When do you think you can get back to 20% operating margins?
We were at 17%, right, at the high level. So,
Yeah
... so I would say that's what I'm really focusing on, is getting back to where we were. I think that we can get, as we think about, like, the end of next year, you know, creeping back up to the 15% range. I think 20%'s gonna take us a little beyond, you know, fiscal 2025.
We're at 12% for next year, so-
Yeah
... if we get to 15%, we'd be happy.
Understood.
With that, thank you so much for joining us. We had Extreme Networks here. It's a buy-rated stock. We think it's at the trough, and much like the semiconductor industry, the time to buy these names is when they're so depressed. Thanks.
Thanks, Alex.