Okay. Good morning, everyone. My name is Tomer Zilberman. I cover two areas here at the bank. I lead coverage of vertical and back office application software, which not so relevant for this discussion, but I also support coverage on networking, and by extension, I cover Extreme Networks. Today I'm joined by Kevin Rhodes, CFO of Extreme. Kevin, thank you for joining us.
Yeah, thanks for having us.
Of course. Kevin, maybe just a high-level question just to start here. For investors that are newer to the story-
Can you talk a little bit about Extreme? Where do you sit in the campus network infrastructure? What's your opportunity in campus switching versus Wi-Fi equipment?
Sure. We deliver obviously, Wi-Fi solutions, both hardware and software solutions, that when kind of combined together, given a very elegant networking experience for our customers. We believe that software is the real key differentiator, and what we've been really focusing on in the last two years is, A, we have this fabric technology which is different than the competitor set. Typically, competitors have an IP fabric, which is more like a seven-layer cake. Ours is, the way that our architecture is built is more like a spider web, and it doesn't have IP addresses. At the end of the day, what you can't move laterally within our network, which gives you a lot more secure architecture for how you configure your network. The hardware itself, access points, switches, those are pretty standard in the industry. We use Broadcom.
Broadcom is an amazing partner of ours, and that's who we use, and we feel very confident in working with Broadcom in that regard. We've kind of solidified, we talked about recently our supply chain for next fiscal 2027. Where we are kind of really focusing on is gaining share. Gaining share against Cisco, against HP, against Juniper. Naturally, there are some forces that are happening in the markets right now that are getting us some opportunity to kind of win more share than the normal competitor. I do describe us as an ankle biter, but we're working our way up to the knee.
Right
At the end of the day, because it's a large market that we can go after, and at the end of the day, we feel like we're really winning head-to-head on technology, but we're also doing it with software.
Right. Absolutely. I want to dive into the technology and software aspect. You are seeing, if you look at the market share data, that you are gaining share, right. I think you were kind of 3% market share last year, 3.5%. I think that momentum's continuing. Before we get into that, I want to talk about the Broadcom piece, right.
Okay.
I think the topic du jour nowadays, which is memory supply shortages and your management of that. As I said, you guys have been executing very well.
Thank you.
Stock wasn't really working up until recently, until kind of last quarter-ish when you came out, you said, "We have line of sight to visibility of memory supply until 2027.
Yeah.
Can you first walk us through how you got there? What are the steps that you have in place to ensuring that you really have all the supply?
Yeah. It's really two things that happened last quarter, right? One, we said about the supply chain, and two, we actually had pretty good margins.
Right.
People were worried about margin pressure, which we've actually kind of solidified through a couple price increases.
Right.
I'm sure we'll cover that. On the supply chain side, first of all, we have an excellent team on the supply chain side, and they've been with us for 10, 12 years. COVID was kind of 10x the problem that we've faced here.
The reality is working with our partners, in particular Broadcom and others, we were able to solidify all the components within the next fiscal year, and that's really Q4 through fiscal year 2026.
Right
2027. We feel very confident, and that's what we said in our third quarter coming out, is that our supply chain is covered. It's not just covered from a contractual commitment perspective, but we've actually bought a lot of the components ourselves as well.
Right.
They're on consignment with our ODMs, but those ODMs is really kind of sitting either on our balance sheet or sitting on the ODM's balance sheet, but at the end of the day, these are components that we've now secured. We feel very good about our ability to achieve and deliver on our promise that we can fulfill.
2027-
Yeah
forecasts.
As you're just kind of referring to, right, you have a mix of inventory on-hand, but also supply that's committed that maybe you don't have on the balance sheet just yet.
We just hosted Arista this morning, and in their last quarter, they talked about decommitments.
Yeah.
What's the risk that your partnership with Broadcom, or I think you've also talked about having direct relationship with some of the memory vendors, that they come to you, and they say, "We know you committed, but we can't just supply it"?
Yeah. On the Broadcom side, number one, we sit at the lower level than like Arista, right? Arista is at the kind of five nanometer and a different type of chip that's coming through Broadcom. We're at the lower level, the Trident level, and we feel good about our ability. We've heard from them that they've got enough supply to cover us.
Right
for that fiscal 2027. I don't think we're going to see decommitments there. Like I said, we feel very confident in our ability to continue to get that supply from them. We wouldn't say that on records unless we actually felt it, and we heard it directly from Broadcom leadership.
Right
all the way at the top. I feel, and Ed has had that relationship-
So it-
for a long time.
it's less of, call it a strategic partnership level, meaning the size and scale of the companies. It's more the actual chip you need is not constrained versus where it is for Arista.
Correct.
Right.
It's a different chip.
Right. Understood. Maybe going back to the growth aspect, right, you had your analyst day, I believe it was towards the end of last year.
Yeah, November.
You set out a 10% long-term growth framework.
Last three quarters, you've been growing nicely above that, anywhere between 11-.
Yeah, 11% last quarter. Yeah.
Right.
12% for the year.
Yep. How do you think about that, right? Where is the growth improvement versus your long-term expectation coming from, and how sustainable is that?
Yeah. A few things. I'd say from a demand environment perspective, we continue to see very strong demand. It's not necessarily a pull forward. There's a few things. One, there's a refresh happening right now.
Right.
Intellectually, if you think about it, people weren't really in the office at all during COVID, 2020, 2021, 2022, even 2023. People started to come back in the office in 2024 and 2025. Here we sit in 2026, full on everybody's back in the office. Well, now that people are back in the office, the networks weren't refreshed over the last four or five or six years. Now you've got all this Claude usage and other LLM usage that's happening, and it's running over the network. People are realizing very quickly that the networks that they have today are not going to sustain them for tomorrow.
That, coupled with Cisco's announcement last June that they're going to have a massive refresh and that they're end-of-lifing a lot of hardware, has got a lot of customers thinking about, "Hey, do I need to refresh my network?" Above and beyond that as well, you've got a lot of customers that are just thinking about lead times. It's now 52 weeks with the memory shortages. They've got to get ahead of what their refresh is going to look like well more in advance now than they ever had to before.
Right.
That's causing everybody. Then you get the price increases happening across the board as well with memory shortages and other components. That's what's causing a lot of customers to think about, "I got to get ahead of this. I got to make sure that I'm being planful about what my network refreshes look like." Oftentimes, we work with our customers, and our customers tend to. I think about a higher education. They'll do higher education university, they'll do their athletics first, then they'll do their dorms second, then they'll do administrative buildings, then the classrooms. There's this cycle that just happens kind of consistently.
on a four or five-year period where they're always refreshing. Well, now you've got Wi-Fi 7. 50% of all of our wireless bookings last quarter were Wi-Fi 7. 37% of our shipments were Wi-Fi 7. That was actually faster than we expected it to happen.
Right.
We see this kind of convergence moving to Wi-Fi 7 as well.
If you think about the growth opportunity, is it more about displacing or moving up the need, like you said, versus some of the bigger incumbents?
Is it more about this kind of secular Wi-Fi 6 to Wi-Fi 7 protocol, or is it kind of sprinkled in between for the both of them?
I think it's those two things, but I think the third is really we're embracing AI differently than our competitor set. The traditional way that people run networks is they have a network, it's installed, and they wait for problems to happen. People put a trouble ticket in, and they say, "Hey, I'm having problems with my video." They go investigate it, and they look at a lot of log files, and they find the access point's got a firmware upgrade that's due. They go fix it, and then they go and tell the person that it's all set, and then they close out the tickets. It's very reactive, and it's very trouble ticket centric.
We've now moved the entire industry towards a proactive approach to managing your network, and this is an approach that is like let the technology help you solve these issues before they become issues.
Let the technology help you become safer, so that you can look at your network overnight while everybody is sleeping, and then it can come and tell you in the morning, "Hey, this is what happened in your network overnight." Those are the sort of paradigm shifts that we're seeing with our technology now that customers are really embracing.
Right.
You want that because the new technology has that, but the old doesn't.
Right. I think that conversation will come just in a little bit about the new-
Sure
Agent ONE platform that you guys debuted pretty recently. Maybe going back into the market dynamics for just a second. If I quantify the market right now, it's give or take, Cisco is about 50% of the market.
Yeah.
HPE, Juniper is about another 10%-15%.
As I kind of mentioned earlier, you're around the 3.5% mark.
Yeah.
You've talked about two growth dynamics or two competitive displacement dynamics. One is Cisco through this end of refresh.
Also HPE and through the kind of integration pains with Juniper.
Sure.
If I just look at the scale of the market share of both of them, is there a difference in how much you're winning against Cisco versus HPE, or is it still kind of broad-based, you're winning against both?
I think it's fairly evened. I think that the dynamic of HPE and Juniper will continue to play out over time. They've got to converge the roadmaps. They still have two independent sales organizations that they're starting to integrate together.
Right.
They're still going out with two different products. People are smart, and they're asking which product is going to survive. If you can't give them a straight answer, I think that that creates fear, uncertainty, and doubt around what I'm buying for the next five years, and is that product going to still be there. I think that's going to kind of shape itself over time. They're doing really well selling servers and whatnot, but we feel like we're starting to gain some share on the enterprise side because of that fear, uncertainty, and doubt.
Right.
They've got $1 billion, I think, their number to take out, and so a lot of employees are being let go as a result of that.
Right.
That's just naturally going to create challenges.
Right.
Your account manager leaves, you no longer have a tie to the company like you used to.
That tends to help us win those customers. The Cisco side, some interesting dynamics here. Obviously, they've announced this refresh, that they're forcing customers through that refresh with the end of life of certain hardware. They also just changed their partner program to point system. Point system is enabling their partners to make money, but only if they sell all things Cisco. I think there's a lot of partners out there that are disenfranchised when they sell Palo Alto and they sell side by side with Cisco, but they're not going to make the points that they used to and the rebates that they used to if they don't sell everything.
We're hearing from partners as well that are interested in being authorized resellers of Extreme because they want to be able to not have all their eggs in one basket because they're not sure what the rebate structure's going to look like in the future.
Right.
Obviously it's dollars and cents is what matters to resellers.
Right. If I look at the pricing environment, I think Cisco's now made three, four price increases?
Four.
Right.
Four is what we've heard.
Yeah. You are at two.
We're two. Yeah.
Right. I think each one was about mid-single digits. Correct me if I'm wrong.
Yeah. A couple things there. One, I think this is actually A, four times versus two times, we tend to sit 10%-15% below Cisco. That might even be more wider now with the four versus the two. I think the one thing that we also are doing going to market right now is that we're giving more certainty around the pricing that we're giving. Our quotes right now, if a reseller deal regs with us, we will give them almost a six-month price guarantee.
Right
Through November 1st. We just announced that about three, four weeks ago. Our resellers love that because now it's price certainty, especially as we kind of cross over years with a lot of governmental agencies who are starting their fiscal 2027 themselves in July. They're looking for quotes now for the next year and all of a sudden, if you can't rely on a quote that's only two weeks old with Cisco and that the price could increase, they could cancel that order before it ships and give you a new price increase. That creates a lot of fear, uncertainty, and doubt around what are you going to buy.
Right.
We're trying to make ourselves, again, we try and make ourselves the easier partner to work with, a technology partner, so we're giving them a little more price certainty.
Right.
Resellers, margin certainty on their end as well.
How do you think about that in terms of, you said you're widening the gap between your list price versus Cisco's list price, but the opportunity set that because Cisco is such a big piece of the market, that you could also in tandem raise your prices.
Yeah. We can, and there's obviously a delicate balance. We want to be very sensitive to price and customer elasticity there. We want our customers to be understanding that we are trying to pass on real costs to them without price gouging. At the end of the day, we want these customers to be happy with the technology that they're buying and realize that there's real value there behind it. Again, with the technology, the software in particular, we're trying to make them more productive than they were before managing their network. Even one research company just came out and said that we are about 32% cheaper than Cisco over a total cost of ownership over a five-year period.
It's just not the upfront, and it's not just the licensing simplicity that we have and the cost of the licensing, but it's also the things like the PoE, just the energy usage of that equipment over time.
Right
We save costs.
Right.
That's what we're trying to differentiate.
How do you think about it from a profitability perspective? Two quarters ago, you did see some margin pressure from the memory.
We did.
constraints, but you came out last quarter and said you can protect the 62% gross margin level, 15% operating margin level.
Yeah. That's right.
Right. Do you think that that pricing stays even over the next one to two years as memory eventually starts easing? Does that help both growth and profitability?
It's a good question. Time will tell whether the cost of memory starts to come down. I don't think that we are going to find ourselves in a situation where memory constraints are lifted and that there's just not enough new memory suppliers-
Yeah
coming online in the next 12 months. No one sees it. While we've secured that and we've got even some customers that are delivering DDR4 memory to us, and we've got other ways of being able to get that DDR4 memory into 2028, Wi-Fi 8 is going to go on DDR5, and that's about 18-24 months out. That's where I think we're all going to see is Wi-Fi 8 being at the DDR5 side. I think at the end of the day, for now, we feel good about where we are from a supply chain perspective and sourcing the memory. We've bought the memory for 2027. That is for sure. We feel good about being able to deliver that.
Right.
The margins, like you said, 62% at the low end. We said at the low end. We think that as we continue to drive more Platform ONE adoption, revenue mix will continue to increase and that we get margin improvement that way as well.
Mm-hmm. Maybe to turn to the AI angle a little bit. I think AI presents an opportunity for you from two sides. One, Cisco talked about as we move more towards inference, there's going to be a kind of higher sustained traffic pattern on the network that facilitates some-
Yeah
need for this infrastructure upgrade. I think you guys have a little bit of a different tune when you think of that opportunity.
Well, there's a few things. A, I do think network traffic is going to increase over time. I would agree with Cisco on that. I think two, it's not going to all be in the hyperscaler.
Right
environments. I think there's going to be a hybrid. I think that customers are going to come back to building out their own data centers. When you think about customers, they have different types of data. If you're a company in clinical trials, that clinical trials data is really, really important to you. You may not upload that into a hyperscaler environment.
If you've got HIPAA data, that may not go outside your four walls either. The sensitivity and then, of course, in Europe, you've got data sovereignty, and that's a big issue there. At the end of the day, we're seeing enterprise customers starting to think about more, do I have a hybrid of using the hyperscale environments, but also that critical data I keep and I put in my own data center. Again, we can kind of go from the data center, which we do today, about 15%-20% of our total revenue, it comes through data centers, all the way through to the core campus, all the way to the edge. Kind of extension all the way through with our fabric technology, with our AI, you can get full visibility of your network all the way from end to end.
That's what we think is going to really help us and be able to drive more volume.
Right. If I think about the data center opportunity, historically at least, you've been a little bit more tied to the service provider use case. Right?
I think you called out partnerships with Verizon and Ericsson as an example.
Correct.
Right. You had your user conference a couple of weeks ago, which I was at, and you debuted or you discussed a enterprise data center switch.
That's right.
I think it was 800 gig.
400 gig and 800 gig.
400 gig and 800 gig.
Yeah.
Can you talk about that opportunity? Why enter the market now? Are you limited to just the enterprise network or do you think that you can grow into, I don't know, the hyperscaler or maybe the tier 2 clouds, the neo clouds of the world?
I would say that our focus is on enterprise, like it's always been.
Right.
I think that's the first and foremost, because our reseller network has got relationships with these customers, and we're a trusted advisor to those customers.
Yep.
It's much, much more natural for my resellers or my salespeople or my sales engineers to have a conversation with an existing customer that knows my technology, and they're going to go from the core all the way out to their data center. That's very, very natural. Could a 400 gig or 800 gig switch go into a different data center? Maybe, but that's just not our DNA right now as a company.
I wouldn't want to overarch to say, "Yeah, we could easily.
Yeah.
The reality is we just don't have those relationships at this point. Can we create some of those relationships? Sure.
It'd probably be through a reseller relationship.
Got it.
Not necessarily direct.
Got it. You started talking about it earlier, but I want to go into the Agent ONE platform that you announced.
Yeah.
If you could first go over it, what it does. I know you have two different forms with two different pricing models. If you can just discuss the differences between them.
Okay. Maybe we'll back up a little bit to Platform ONE.
Yeah
like what it was when we first went out, right? We introduced Platform ONE, and the agentic model was really a, what I would say, a query model. Our first generation of Platform ONE that we announced last July was you ask a question, just like if you would ChatGPT or Claude. You ask it a question, it will give you an answer. You can query, you can constantly query, you're trying to get those answers back, you're trying to basically pull information out of the system that way. The new generation of Agent ONE, which we're calling basically more agent actions, there is a coworker mode, and then there's an operator mode.
The coworker mode, think about it as a virtual desktop IT agent that's working for you. You're able to work with this agent and basically have it do tasks on your behalf. Now you're not just doing queries, now you're actually doing actions, agent actions, that are helping you protect your network. That is a light year ahead of where everybody else is from a networking perspective right now. Even Cisco has kind of announced what they're doing from a AI perspective a day or two ago. The reality is that's akin to our first generation, and we're already leapfrogging what they have with our second generation, which is coming live. We just showed it-
Yep
on stage live demo. We have not seen any live demos whatsoever what Cisco has, but we showed it live on stage as a demo at our user conference, and we're going GA with that. It's in limited availability with certain customers today, and we'll go live with that in July.
Right.
That's exciting.
So-
There's the operator mode, which we talked about as well, which is our agents working with other agents. It's like an agent exchange. Creating a ServiceNow agent working with our agents and being able to manage tickets simultaneously with our networking agents to be able to solve issues.
Right. The pricing mechanism for both?
Yeah. Right now, Platform ONE tends to be about 15% higher than if you bought our old, what we call ExtremeCloud IQ.
Ironically, IQ is what Cisco's calling theirs now. We also had support contracts separately. We've bundled those together, and then we added our AI on top of that, and that's what Platform ONE was. You've got Agent ONE, which is going to be slightly higher than that because what we're going to do is we're going to monetize the agent actions. Within your Platform ONE subscription, you're going to have what I'd call a reasonable amount of agent actions that you can use that's embedded within, and then you can buy more blocks of agent actions should you choose to go and do more.
Right.
That's the monetization there.
Is this an area that needs customer education? Meaning, is this more about future-proofing the portfolio now for this world of agentic network operations, or do customers kind of understand the problem, understand the benefit from adopting agents for their networks?
Yeah. Well, it'll take some time, naturally, like anything. I think this is not a use case where a company is going to spend their time trying to use Claude or Claude Code and try and solve this issue on their own. I'm coming to market to solve the issue for them as a product feature and not necessarily force them to go do it themselves. The benefits they're going to get out of it is they get a better view of their network. They get a better proactive view of what's happening within their network. Naturally, there are natural security ramifications of that.
If you've got over-the-top security today on top of your network, well, maybe you don't need as much of that security in the future. There is, at least for the smaller businesses, they could actually manage very well with what we're doing from an agentic AI perspective versus buying some software on top.
Yeah.
It's not going to get rid of Check Point.
Yeah
It's going to be just better visibility of what's happening in your network.
Yeah. Are you competing in the space more against the vertical players or the horizontal players? Meaning, are you going to see more companies like Cisco and HP come out with their own agentic platforms, or will you see AI native companies in the space?
No, I think slower than us because we seem to be more innovative, more nimble. I think that Cisco and HP/Juniper will come out with their own agentic AI. It's just going to be 18, 24 months behind us.
Right.
We were already doing this. When we launched last July, we had backed up from that 18 months prior to that to build that agentic layer that we had.
Yeah. We only have a few minutes left here. If there's any questions in the room? Tal?
Technology is one aspect. What about go-to-market?
Did AI change your go-to-market at all, or it's the same effort, same customer?
We're using AI actually to help our go-to-market. A few examples. RFPs. We have put all the historical RFP responses into a container, into a RAG model, and then we are, naturally, any new RFP that comes through, we are basically putting Claude Code against that to be able to kind of have 90% of the RFP response ready and going, and then we're filling in the rest. That's one thing that we're doing. We are using it also for empowering our resellers. Differences between Cisco and Extreme, enabling them from an AI perspective to be able to fill in those queries, ask those queries, and be able to be very responsive to our customers. Obviously, sell sheets and things like that, being able to generate those as well.
I think we're embracing it from a sales ops perspective in being able to, not only our own sellers, but also our partner resellers, to be able to make them more efficient and more productive. For sure.
You're running very fast on the technology side.
Tell me about your go-to-market in general, not just-
Okay
About AI.
Yeah.
What have you done in the last few years to broaden the market reach, customer reach?
Yeah.
What are the pilot efforts that you have done on the go-to-market?
One of the things we did, Tal, is that we looked at our reseller universe and realized that we have a great, very sticky, very loyal reseller base. From a growth perspective, many of those resellers, owner-owned, they're very happy with us, but growth was not necessarily top of mind. They do $30 million a year or $50 million a year, and they're very happy with the size where they were operating. What we realized is that we needed to move up market, and we needed to move up market with larger resellers, more reach, more ability to generate more demand for us. We've been on a crusade, if you will, for the last 18, 24 months. We actually hired the head of partnerships from Juniper. We actually hired the head of European sales from Juniper. These were two wonderful adds to our management team.
They have obviously very good relationships with their resellers and also with sellers within Juniper as well who are maybe out of a job. We're getting just more and more, I'll call it halo effect, from a go-to-market perspective based on some of those things that we've done. Things like NTT East, companies like Softcat or Computacenter or WWT or CDW, we're building much stronger relationships with these larger resellers that have a lot more volumes.
Last question is about the portfolio. We've seen, if I take a five-year view, not a quarter view.
Sure
I've seen switching companies expanding the portfolio into adjacent areas.
Arista went into SD-WAN, went into Wi-Fi 4. The view is to provide a much wider portfolio. Where are you in terms of your vision, your own vision of complete?
Are you where you want to be, or do you think you need to grow horizontally into adjacent markets in order to provide a wider portfolio?
Yeah. It's a good question. I would say from a product perspective, we've got a niche, and that niche is just enterprise and enterprise networking. We're focusing on the Wi-Fi 7 portfolio expansion. We've now created a ruggedized switch. That's kind of an interesting one that people were asking for for a while. Now we have that. Now we've got 400 gig - 800 gig coming online. I do feel like we are expanding the portfolio more than we've done in the past. The reality is you could always do more, but it's really doing it all, doing it well is an important element for us. We believe that we have very sticky customers, and the reason why we have such loyal, sticky customers is because we deliver for them, and we do it with high quality.
We don't want to basically take away from that by expanding too much adjacently and then basically not doing the things that we need to do right.
I think Tal might have looked over my question list because he addressed some of the things that I was going to get to you.
Okay.
Unfortunately, we're out of time.
Okay
Kevin, we'll bring you back next year to round it out. Thank you so much.
Thank you very much, Tal.