Hello. Thank you for joining us, and welcome to the Extreme Networks Q2 fiscal year 2026 financial results. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. I will now hand the call over to Stan Kovler, Senior Vice President of Finance and Corporate Development. Stan, please go ahead.

Thank you, operator. Good morning, and welcome to the Extreme Networks second quarter fiscal year 2026 earnings conference call. I'm Stan Kovler, Senior Vice President of Finance and Corporate Development. With me today are Extreme Networks President and CEO, Edward B. Meyercord, and Executive Vice President and CFO, Kevin Rhodes. We just distributed a press release and filed an 8-K detailing Extreme Networks' financial results for 2026. A copy of the press release, which includes our GAAP to non-GAAP reconciliations and our earnings presentation, is available in the IR section at extremenetwork.com. Today's call and Q&A may include certain forward-looking statements based on current expectations about Extreme's future financial and operational results, growth expectations, new product introductions, and strategies. All financial disclosures made on this call will be on a non-GAAP basis unless stated otherwise. We caution you not to put undue reliance on these forward-looking statements as they involve risks that can cause actual results to differ materially from those anticipated by these statements. These risks are described in our risk factors in our 10-Ks and 10-Q filings. Any forward-looking statements made on this call reflect our analysis as of today. We have no plans to update them except as required by law. Following our prepared remarks, we will take questions. And now, I will turn the call over to Extreme's President and CEO, Edward B. Meyercord.

Thank you, Stan, and thank you all for joining us this morning. The second quarter marked our seventh straight quarter of revenue growth driven by strong demand for our AI-powered platform, fueling share gains and double-digit year-over-year growth. Over the past twelve months, we've grown three times faster than our largest competitors in the enterprise networking space, highlighting the fact that we're winning market share. Our revenue was $318 million this quarter, exceeding our guidance and a 14% year-over-year increase driven by continued competitive wins with large customers across all verticals. Product revenue increased double digits year over year for the fourth consecutive quarter. Cloud subscription momentum lifted SaaS ARR to 25% year-over-year growth, landing at $227 million. And finally, we experienced our strongest subscription bookings on record with Extreme Platform One leading the way. Our technology differentiation and the quality of our team's execution are driving growth and enabling us to move upmarket and win larger enterprise networking projects. This quarter, we closed 34 deals over a million dollars, highlighting confidence in our differentiated technology and our ability to win in highly contested head-to-head competitive situations. Our innovation is translating into purpose-built solutions for larger, more demanding enterprise environments. Why are we winning? Competitors can't match the capabilities of our end-to-end campus fabric, which continues to be a major driver of large enterprise wins. Differentiated by capabilities like zero-touch provisioning, subsecond convergence, and the creation of hyper-segmented networks that hide IP addresses and thereby limit the blast radius of lateral cyber attacks—a major security benefit. For those of you who recall our Investor Day, a Fortune 100 customer remarked that what takes Cisco six hours takes Extreme six minutes. And this is the power of our fabric. Platform One is unique, with a true agentic AI core. Our AI…

Thanks, Ed. Total revenue of $318 million grew 14% year over year and exceeded the high end of our guidance range. And as Ed mentioned, this is our seventh consecutive quarter of revenue growth. Earnings per share of $0.26 also exceeded the high end of our guidance range. Earnings per share grew from $0.21 in the prior year quarter, a 24% year-over-year improvement. So our profit growth rate outpaced our revenue growth rate by 10 percentage points. SaaS ARR also accelerated to 25% growth on a year-over-year basis, driven by our success with Platform One subscriptions. Platform One bookings were well ahead, even twice the amount of our target, resulting in accelerating year-over-year performance in subscription bookings. The expected acceleration in growth for the high-margin subscription revenue we laid out at our Investor Day in November is playing out as expected. We are excited about the continued growth in our recurring revenue base, up 12% year over year, and we have a strong pipeline for Platform One sales. Geographically, we had strong year-over-year revenue growth across all regions. This speaks to our improved alignment between our go-to-market teams, a robust demand environment for critical IT infrastructure, and our ability to target larger partners and deals across the globe. We continue to gain traction with new, larger partners and associated new customers when it comes to our new logo wins. Subscription and support revenue reached $120 million, up 12% year over year and up 3% sequentially. Our SaaS deferred revenue continued to grow to $334 million, a 15% year-over-year increase. Overall, deferred recurring revenue climbed to $628 million, a 9% year-over-year improvement. We are pleased with the predictability that this high-margin revenue gives us. Non-GAAP gross margin was 62%, an increase of 70 basis points from the last quarter and at…

We will now begin the question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from the line of Michael Genovese with Rosenblatt Securities. Michael, your line is now open.

Great. Thanks very much. Congratulations on the good quarter. I think you guys gave some compelling metrics about share gain. Can you talk about, you know, more about that, though? Like, you know, the evidence that you use to show that you're gaining share and to prove that you're gaining share and, also, you know, kind of restructuring that you did in the kind of the go-to-market model during the quarter, whether that, you know, had, you know, in terms of putting Norm in charge and other types of restructuring, you know, how you approach share gain, whether that had an impact in the quarter or whether that impact is more in front of us. Thank you.

Thanks, Mike. I'll take that. Yeah. We don't make up the numbers in terms of share gains. We use third-party analysts and we look at, like, 650 Group and Dell'Oro, etc. When you look at Extreme and you compare us to Cisco or now HPE, they have a lot of other businesses. They play in a lot of other market segments. So it could be difficult to dive in and really understand what's happening in the enterprise market, which is where we play. So the analysts do a really nice job of getting the information and kind of zeroing in on how competition is performing where we compete. And so when I say we're growing at three times the market, we're using third-party industry data looking at enterprise deployments, which is campus enterprise data, etc. Data center, etc. So that's how we get the data in terms of how we know we're winning. I think everybody here knows we compete every day head-to-head with now HP and Juniper is turning into HP, and they've got their hands full. And then Cisco. So we have hands-on information of our competitive wins and win rates and we understand kind of how and why we're taking share from that standpoint in terms of winning new customers from those larger accounts. To your point, Mike, Norman has been in charge as Norman Rice is we put him in charge of sales. It's hard to believe it's been two years, but he's brought a lot of discipline into the process in terms of how we forecast, driving accountability, and then making a lot of changes in terms of the personnel and leadership. And so I would say we have more confidence today than we've ever had in our bookings outlook and our bookings forecast. With,…

Great. That was such an extensive answer that I almost feel hesitant to ask a follow-up, you know, for time's sake and other analysts, but I will ask a follow-up. Which is, you know, I don't think that you guys, you know, mention if we looked at AI mentions on this conference call, there probably weren't a ton of them. So in either, you know, in terms of sort of, you know, agentic offerings or, you know, enterprise switching upgrade cycles, and confidence that that's gonna happen. Can you just talk about, you know, the importance of AI and what you're seeing, you know, from your offerings and from your customers' activity related to AI? And then I'll pass it on. Thank you.

Sure. Well, look. AI, you know, continues to be top of mind for all of our customers. Everyone's trying to figure out, hey, what's the use case for AI? You know, how can I use, you know, modern AI technology in my environment to drive better business outcomes? And we're all over that. You know, we had our AI summit in Major League Baseball headquarters in the fall with a great, great response. You know, we are probably the only networking vendor that has an agentic AI platform where our AI sits at the core of the platform. And it's something that gives us a real advantage when we're having conversations today as people are contemplating AI, they want to look at players that have developed platforms. And this is, again, a place where our size becomes an advantage for Extreme because of the capabilities that we've built and then what we're going to be able to do in terms of integrating our network capabilities with ecosystem partners of our customers when we start looking at AI agents, creating an agent exchange, creating the ability to create workflows and drive outcomes for customers. So we've always been a leader in cloud. We've been a leader in AI, kind of gen one, if you will. I'd say alongside Juniper Mist and Meraki. Now we feel like we're in a position to pull ahead because we've created this platform. And, again, as I said, it's the only one with a pure agentic AI core. And we think this is gonna give us enhanced capabilities as we go forward. And so, yeah, it's top of mind for customers. Everybody wants to know about it. This is an advantage for Extreme. I will say we doubled our forecast for subscription bookings for Extreme Platform One, which is our AI platform. So things are going really well. Our sellers are having a great time with this out in the market.

Perfect. Thanks again.

Your next question comes from Tomer Zilberman from the Bank of America. Tomer, your line is now open.

Great. Hey, guys. Good morning. Maybe going back on the share gain question. When we look at the opportunity that you're seeing from these competitive displacements, are you coming in all at once both the Wi-Fi piece and the switching piece? Or are you seeing it start in one area, kind of landing in one or the other, and then further expanding? And then I have a follow-up.

Yeah. Tomer, it's, you know, each project will have a life of its own. So, you know, we'll have a unique opportunity because we're the only player that can provide data sovereignty. So cloud choice becomes an issue in Germany where a customer has data sovereignty requirements, and we bring a unique solution with our cloud choice. Interestingly, our fabric over SD-WAN won the day with the Japanese government and the huge wins that we've had over there. So it was really about the differentiation of our fabric technology and the fact that we were able to bring fabric over the wide area network with SD-WAN to create this unique solution that none of our competitors could replicate and therefore, it opened up the channel and opened up huge opportunities in Japan. The hottest technology for us today is our fabric. Everybody has an IP fabric in the industry. And IP fabrics for data centers, that's great. Nobody has a fabric for campus. That's layer two, and that's what we have. And so when we get into beauty contests, where customers let's look at the Cisco refresh and now it's time to upgrade the network. And now a customer says, alright. Well, bring in a few other competitors. People are blown away. My comment, what takes Cisco six hours takes Extreme six seconds. That is a real quote from a Fortune 100 customer. The agility and the speed of turning up network and provisioning network as well as the delivery of service as well as the resiliency of the platform, the ability to create networks in the network. Again, this is, you know, Miami Dade County. You know, I could go across to huge government customers around the world, huge manufacturers, healthcare providers, when we get into a head-to-head competition, you know, we physically show customers what we can do and let them play with the technology and our competitors can't replicate it. So all of a sudden, Extreme goes from maybe a distant third or fourth, you know, right into contention as a finalist, and our teams are doing a great job executing and winning in some of these competitive projects.

Got it. Maybe as a follow-up, talking about memory prices, you started talking about it last quarter, and I think in between, or maybe it was last quarter you implemented a mid-single-digit price increase. So my question is, how did customers first, how did customers react to that? And since we've seen memory prices continue to rise, you know, what's the signal for another price increase and are you seeing any decommitments from suppliers?

Yeah. Tomer, great question. And I'm yeah. We're well aware that supply chain and component availability is top of mind for everybody out there. Yeah. We implemented the price increase earlier, a 7% price increase, and I can say, you know, it's like a tree falling in the forest. A total nonissue. You know, I mentioned the price inelasticity of networking. If you think about an organization, think about your organization. There's no discussion about whether or not you need a network. And that you need a modern network with modern networking tools. So this is true for all of our customers. It's kind of a nonnegotiable. So I'd say our customers are very resilient from a pricing perspective. Going forward, we will evaluate price increases as we go forward and use that, you know, where we need to. We're very good at it as a company, and I'd say we're very good at it as an industry. Specifically, you know, meeting demand for things like DDR4 memory, I believe size is an advantage for Extreme here. First of all, we have a very strong team. It's the same team that we've had going back into the COVID era, and, you know, supply chain disruption is normal for us. Our business. And so our teams are very strong. We have excellent vendor relationships. So I'd say we get out in front of these things before our competitors. Size is an advantage. We're solving for fewer problems. We're solving for enterprise networking, switches, and access points. Our competitors have much bigger portfolios that they're trying to solve for. And then what we need, what we're chasing for is lower volume. So in a way, it's easier for us to get our hands on it. So these are some points that allow us to be kind of resilient in that environment. I'll give you an example. With DDR4 memory chips. We're working with a vendor and, yes, prices are going up. We talked about raising price. But we talked about how we can find other sources of supply and we were able to unlock DDR4 chips that had been designed and developed for another industry. And they were actually aging inventory for another industry we were able to pull in the chip, bring it to our vendor, bring it to Broadcom, work closely with them, and they certify the chip and that opened up a new source of supply, for example, of memory. That's the kind of thing that Extreme does that I think is a little different from our competitors. And so our teams are out there very creative finding ways to replace components and find alternative sources of supply in the market. Again, our size is somewhat of an advantage for us to meet demand.

Got it. Thank you.

Your next question comes from Ryan Koontz from Needham and Co. Ryan, your line is now open.

Great. Thanks. Nice quarter, guys, and nice to see the outlook hanging in there strong. Maybe unpacking the ARR bit, the cloud ARR, in the quarter a bit. Can you maybe talk about, you know, puts and takes where you're seeing, you know, strength in selling subscription and areas you're still working on within that sales process?

Yeah. Thanks, Ryan. I mean, the strength has been with Platform One. Ryan, I mentioned that, you know, we don't disclose our internal plans, but we had an internal plan for Platform One that we more than doubled in the quarter. And, you know, people are the way that we structured our commercial terms is that our customers can buy Platform One. Then they can move at their own pace and migrate from XiQ and our other, you know, our cloud platforms. And so our customers have really embraced that. And so I'd say that's where we're seeing most demand. Kevin, do you want to comment?

Yeah. I think you're right. And we've laid this out the day, right, that we expected, you know, mid to high, you know, twenties, growth rates, and we're seeing that now with the 25% growth rate in ARR. It is absolutely just a product of a really good platform, a simple licensing model, you know, that includes the cloud management, includes the agent AI, it includes, you know, the support contracts and everything that we talked about. And then people like that model. And it's simple for them. It's easy. They understand what the pricing is. They're not gonna have hidden costs in the future, etc. And then our customers really enjoy the Agendaq AI, and how that's, you know, making their network operations just that much more efficient. It's like adding an extra engineer to their team is what they're saying.

That's great. Thanks for that color. And, you guys just some really strong results in EMEA. It looked like a record from what I can tell, or close to it, at least for several years. You know, can you maybe unpack what's behind that strength? We heard from kind of a private networking peer last night that also had very strong EMEA sales and noted there that there were some regulatory requirements around sovereignty coming down from the EU. Maybe you can explain if there was any impact on some of your sales due to regulatory.

Yep. And, Ryan, I'd say I don't think we've seen the benefit of that yet. I think that portends good things to come for Extreme. You know, when you talk about data sovereignty, if you talk to the Gartner group, they'll tell you that Extreme is the only player in the networking space that can deliver a data sovereign solution in networking. And so and that goes back to Cloud Choice. And, you know, when you look at our competitors in a public cloud that doesn't quite get you there, or you have a purpose-built cloud that, you know, isn't built and operated, you know, in-country, this is an area where, you know, we have an opportunity. I will say we are seeing, you know, as governments, government coalitions in, you know, Europe form and get organized, and get united around creating budgets and spending. For us, I'd say it's taken longer than we've expected for spending to be unlocked, but we're starting to see government spend come back. We put that in our comments. So we expect that to be Europe to be a tailwind for us going forward. Kevin, do you want to add anything?

No. I think you covered it, Ed. The only other thing I'd add is we just added a new leader to our EMEA sales group, and he's come in and he's been very impressed with the opportunities that are in the EMEA market, and he's very excited. So I think that we've got the right team in place and there's plenty more opportunity there in EMEA for us to continue as well.

Super. Appreciate the commentary.

Yep. That's right.

Your next question comes from Dave Kang from B. Riley. Dave, your line is now open.

Thank you. Good morning. Just a question on the rumor about this ruckus, and you guys just wanted to hear from you directly.

Yeah. Thanks, Dave. Yeah. I would just say, you know, at Extreme, our policy, if assets or businesses are potentially for sale or if potentially available in the marketplace, we're always gonna have a look. So at Extreme, you'll always see us, and I would say we're always in the market looking at different assets, be it adjacencies or being it or being, you know, players in our direct space. So yeah, I think you could always expect us to be engaged in dialogue to get smarter and to learn. And I would say to the extent that there's an opportunity that presents itself, we will always have the condition that anything that we do would be accretive. But I would say, you know, at this point, you know, that's conjecture. There's really nothing for us to comment on on that front.

Got it. And my follow-up is, tariff situation. Just any changes, anything that we should be concerned about?

No. I mean, you know, it goes back to, you know, supply chain, etc. Changing tariffs is a way of life for all of us, especially with the current administration in the US. So this is a core competency at Extreme, so we're well-versed in manipulating and managing through a changing tariff environment. So at this stage, I'd say it's a nonissue for us at Extreme.

Got it. Thank you.

Your next question comes from Christian Schwab at Craig Hallum. Christian, your line is now open.

Great to take my questions. So thanks for the guidance for fiscal year '26. But as we look a little bit longer term, Ed, given market share gains, you know, in conjunction with, you know, we'll call it better solutions, as well as the disruption by two of your leading competitors and recent strong sales strength. Is it safe to assume that we should expect a continuation of double-digit top-line growth in '27 over '26, without any unforeseen, you know, macroeconomic dislocation?

Yeah. And I don't want Kevin and Stan to have provided you, Christian, as far as the outlook for '27. You know, what you're saying makes a lot of sense to me. Because, yeah, we're seeing this continuation of, you know, not only demand in the marketplace but the strengthening of our competitive position, especially considering what's going on with the larger two players. So us nibbling away in small share gains for Extreme has a big impact on our top line. Kevin, I might let you jump in and comment on the official sponsor.

Yeah. I mean, my comment would be, you know, we feel confident with and positive about all the improvements we've made from the go-to-market perspective. I'd say we feel comfortable with the FY '27 setup. Obviously, we are not guiding to '27 yet. We still have plenty of time, and I would say this market's pretty dynamic right now. And so it's really hard to get, you know, that far out, like, a year and a half somehow. We feel really good about our guidance for FY '26, and I'd say, you know, we'll circle back, you know, on '27 in the coming quarters. Just don't want to comment too much about that far out, given where we are in the market.

That's fair. And, unfortunately, we're gonna ask another long-term question. You know, given the gross margin headwinds in the near term, you know, given the big installation of large deal contracts but still restating the goal of 64 to 66% gross margins. I won't ask you to give me the level of improvement with clarity. But is, you know, and your ability to raise prices, which appear to be currently happily absorbed by the given their networking technology needs, given memory component cost in particular. Would we should we expect gross margins in aggregate to improve, you know, in '27 over '26 as we begin the march towards that 64 to 66% goal?

I mean, I think that's a safe bet, you know, to say that we will expect improvement. Just a reminder, the product gross margins coming out in Q3 and Q4 will improve, Christian. Right? So you've got the product margin improvement happening there already. It's really just these lower margin, you know, professional services that will overhang in the third and fourth quarter. You know, as we do those installations. And those are just, you know, that's higher installation revenue than we normally have there. But, you know, naturally, in '27, and I can't predict how many installations we might have in '27 at this moment, but naturally, if we have a normalized amount of professional services revenue in '27, you would certainly see a mix improvement in margin in '27.

Okay?

Yeah. That's a fantastic answer. Congrats again on the great results and outlook. Thank you.

Yeah. Sure.

Your next question comes from Eric Martinuzzi from Lake Street Capital Markets LLC. Eric, your line is now open.

Also wanted to focus on the gross margin color that you gave. Just at the bottom line, the 98¢ to a dollar $0.02 for FY '26, relatively in line with where you were before. Is that to say then that there's not a substantial incremental contribution then from the professional services? In other words, are we talking no margin on the professional services that we're taking on? Because I would have expected, given the beat for Q2, that the guide for the EPS for the year would have risen.

Sure. I mean, you would expect, Eric, right, that the overall deal is a good margin deal. Right? But that we do tend to price the professional services installation with a much lower margin than our subscription and support, which tends to be in the 70% range. And it's just low margin. And these all have a different, you know, margin profile to them, but I would say they're in the, you know, 15 to 20% range, you know, of margin, not certainly at the 70% level like you see, you know, in subscription and support. And so that's where I would comment that that's why you see a mixed shift in the third and fourth quarter being a little bit overall lower margin but, again, product margins improving in the second half of the year.

Yeah. I guess, Kevin, I'd jump in and add. I would just jump in and add, Eric. Like, in some cases, we get involved and a customer says, we'd really like you to do the cabling work, for example. And then we'll bring in a contractor and mark it up ten, 15%. Right? And that's not, you know, our traditional business, but it's almost like us doing a favor for a customer in a large, complicated project. And we have some large, complicated projects going on right now where customers have said we feel more comfortable if you would manage this, you know, through your professional services organization. So again, you know, where we have subscription at an 80% margin, we have, you know, support and other services in the 60, 70% range. You know, it gets pulled down when we get pulled into some of these large projects. It's the right thing for us to do for customers, but it has a near-term effect. Over the long term, you know, once we've deployed, once we're in the stadium, then, obviously, those margins go up as we continue to work with those customers.

Got it. Thanks for taking my question.

Your final question comes from David Vogt from UBS. David, your line is now open.

Great, guys. Thanks for squeezing me in. I have actually kind of a three-part question here, Ed and Kevin. I appreciate all the detail. But the question I have is on sort of pricing demand and margin. And I'm just trying to triangulate all the comments that you made in your prepared remarks and in response to questions. So maybe just from a demand perspective, obviously, we understand that you took prices up 5-7%. Are we just are you suggesting that the price increases are not filtering into revenue this year in fiscal '26 relative to where you thought you'd be, you know, three months ago or six months ago, given Kevin mentioned you have several multimillion-dollar deployments in the outlook going forward? And is the guidance raised just those multimillion-dollar deployments? And I'll give you the second question along that. So even if I take that into consideration, the low margin of the installments, it sounds like gross margins on a pure product basis adjusted for the installments are down relative to where you were three months ago. Can you talk to, like, what that dynamic looks like if pricing is not going into effect just yet? And then the final point I would ask is when I think about '27, I know it's quite a ways away. Would you imagine that pricing has a much bigger impact on margin next year? And demand versus where we sit here in 2026.

Kevin, if you want, I can jump in. And then you can Yeah. Go ahead. Yeah. I'll then I'll follow-up. Yep. David, the pricing it comes in pretty quickly. I mean, I think yeah. So you'll see the impact. Kevin mentioned that our product margins are going up. So our product margins are up this quarter over last quarter, and will be the second half of the year. So there are just a few of these large projects that have professional services that drive the margin down. But, you know, they're on the services side. But on the product side, you know, we're expecting growing product margins in this environment. The other thing that I'll say is when, you know, as we go forward, you know, we still have the ability to use pricing, you know, as a lever. And so you'll see us and you'll see the other players in our industry, you know, passing through pricing, you know, as we make adjustments for what's happening in the supply chain. Kevin, do you want to add to that?

Just from a timing perspective, Ed, where we put some price increases through in the second quarter. We had minimal effect on our results in the second quarter. We expect more to flow through in the third and fourth quarter from those price increases we made in November.

And can I just ask for clarification, is the guided range for '26 updated reflecting the multimillion-dollar installment revenue in Q3 and Q4? Or are you seeing a price increase driven revenue uplift in the guide? Or a combination of the two?

Our guide reflects, you know, a, the installation revenue and the lower margin relates to that. And, b, all of the decisions we've made so far on pricing today. You know, we haven't made any other decisions yet. And we can't reflect anything in our guide that has enough.

Great. Alright. Thank you, guys.

Yeah. Sure.

There are no further questions at this time. I will now turn the call back to Edward B. Meyercord, President and CEO, for closing remarks.

Thank you. Thanks, everyone, for participating on the call. We appreciate it, and we always appreciate the questions. We also want to thank employees tuning in and customers and partners who are listening in and more importantly to them for the partnership and driving an excellent quarter. So we're looking forward to continuing on the journey in terms of our innovative solutions, driving growth, and we look forward to meetings upcoming. And then delivering on another quarter. Thanks, everybody.

This concludes today's call. Thank you for attending. You may now disconnect.