Extreme Networks Q1 Revenue Rises 10% as SaaS ARR Grows 22%

Extreme Networks Inc. (Nasdaq: EXTR) reported double-digit revenue growth and a sharp increase in profitability for its fiscal first quarter of 2027, supported by higher product and subscription revenue and continued expansion in its software subscription business. The enterprise networking company also issued second-quarter and full-year guidance that calls for further revenue growth and non-GAAP operating margins above 16%.

Revenue for the quarter was $341.1 million, up 10% from $310.2 million a year earlier and slightly above $338.6 million in the preceding quarter. Extreme said the period marked its seventh consecutive quarter of double-digit year-over-year growth in both total and product revenue.

Product revenue increased to $218.3 million from $194.0 million a year earlier, while subscription and support revenue rose to $122.8 million from $116.2 million. The Americas generated $184 million, or 54% of quarterly revenue, while Europe, the Middle East and Africa contributed $130 million, or 38%. Asia-Pacific accounted for the remaining $27 million, or 8%.

Margins and earnings expand

GAAP gross profit rose to $211.9 million from $188.0 million, with gross margin increasing to 62.1% from 60.6%. On a non-GAAP basis, gross profit advanced 12% to $213.5 million and gross margin reached 62.6%, compared with 61.3% a year earlier.

GAAP operating income more than doubled to $23.1 million from $11.3 million, lifting the operating margin to 6.8% from 3.6%. GAAP net income was $16.0 million, or $0.12 per diluted share, compared with $5.6 million, or $0.04 per share, in the prior-year quarter.

Non-GAAP operating income increased to $59.4 million from $41.4 million, while the corresponding operating margin widened to 17.4% from 13.3%. Non-GAAP net income was $44.5 million, or $0.33 per diluted share, with earnings per share up 50% year over year. Adjusted EBITDA climbed 47% to $65.6 million, representing a 19.2% margin.

The non-GAAP results exclude items including share-based compensation, restructuring charges, system transition costs, litigation costs and other non-recurring expenses. The quarter included $7.3 million of restructuring and related charges and $3.7 million of other non-recurring costs.

SaaS and recurring revenue grow

SaaS annual recurring revenue reached $265 million, up 22% year over year from $216 million. Extreme Platform ONE accounted for more than half of subscription bookings, and the company reported continued double-digit year-over-year growth in total subscription bookings.

Recurring revenue increased 7% to $119 million and represented 35% of total revenue. Deferred recurring revenue ended the quarter at $651 million, up from $618 million a year earlier, with SaaS accounting for 60% of that balance. Extreme noted that SaaS ARR is an operating metric rather than a standardized GAAP measure or a forecast of future revenue.

The company recorded 44 customers with bookings of at least $1 million during the quarter.

Cash generation and outlook

Operating cash flow was $45.4 million, while capital expenditures totaled $6.8 million, resulting in free cash flow of $38.6 million. Extreme repurchased $25 million of shares during the period.

Cash and cash equivalents increased to $244.5 million from $211.8 million at the end of the prior quarter. Gross debt rose to $200.0 million from $165.0 million, leaving net cash of $44.5 million. Inventory increased sequentially to $100.0 million from $70.0 million.

For the fiscal second quarter, management expects revenue of $345.8 million to $350.8 million. GAAP gross margin is projected at 61.8% to 62.3%, with an operating margin of 9.1% to 10.2% and diluted EPS of $0.19 to $0.22. On a non-GAAP basis, Extreme expects gross margin of 62.2% to 62.7%, operating margin of 16.4% to 17.4% and EPS of $0.32 to $0.34.

For fiscal 2027, the company forecasts revenue of $1.4023 billion to $1.4123 billion. Its outlook calls for a GAAP operating margin of 9.2% to 9.7% and EPS of $0.77 to $0.83. Non-GAAP guidance includes an operating margin of 17.2% to 17.6% and EPS of $1.35 to $1.39.

Extreme cautioned that its outlook depends on factors including market conditions, global demand, customer adoption, product execution, go-to-market performance and competition in enterprise networking. The company said these forward-looking expectations are subject to risks and uncertainties that could cause actual results to differ materially.