Q1 2026 Earnings Call: Contradictions Emerge on Federal Shutdown Impact, Platform ONE, Margins, and Competitor Traction

Date of Call: October 29, 2025

Financials Results

• Revenue: $310 million, up 15% year-over-year
• EPS: $0.22 per share (non-GAAP), up 29% year-over-year (from $0.17)
• Gross Margin: 61.3% non-GAAP in Q1, impacted by component (memory/optics/metals) cost increases; company expects to recover ~100–200 bps to about ~63% by year-end and targets 64%–66% long term
• Operating Margin: 13.3% in Q1, up from 12.4% year-over-year; Q2 guide 13.4%–14.6%

Guidance:

• Q2 revenue expected $309M–$315M; Q2 gross margin 61.4%–62%; Q2 operating margin 13.4%–14.6%; Q2 EPS $0.23–$0.25; diluted shares ~136M
• Full FY26 revenue expected $1.247B–$1.264B (midpoint ≈10% YOY) with normal Q3 seasonality and sequential growth in Q4
• SaaS ARR growth goal in the low‑20% range; recurring revenue expected to be ~35% of total revenue for FY26
• Company expects revenue growth to accelerate to ~10% for the remainder of FY26

Business Commentary:

• Revenue Growth and Market Share Expansion:
• Extreme Networks reported revenue of $310 million for Q1 FY 2026, up 15% year-over-year, marking the sixth consecutive quarter of revenue growth and the third straight quarter of double-digit year-over-year increases.

• This growth was driven by strong execution and differentiated technology solutions, particularly in the Americas, EMEA, and Asia Pacific regions.

• SaaS ARR and Subscription Growth:

• Sustained growth in SaaS ARR was reported, up 24% year-over-year to $216 million.

• This growth was attributed to recent large wins, adoption of new Platform ONE, and expansion of new commercial models like the MSP program.

• Impact of Component Price Increases and Strategic Initiatives:

• The company experienced a 61.3% non-GAAP gross margin, which was impacted by industry-wide increases in component costs, including memory and optics.

• To mitigate these costs, Extreme Networks implemented mid-single-digit price increases and tactical initiatives to recover these expenses and drive margin recovery.

• Certification and Government Wins:

• Extreme's expansion within a major government in Asia Pacific led to securing a large network project using Extreme Fabric over SD-WAN.
• The company's proven execution with government agencies in the region is opening new opportunities, including sovereign cloud capabilities, enabling it to win larger deals and move upmarket.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasized momentum: "Revenue reached $310 million, up 15% year-over-year," "sixth consecutive quarter of revenue growth," SaaS ARR up 24% YOY to $216M, bookings up 21% YOY, and guidance implying FY26 growth of ~10% and margin recovery actions (price increases and supply‑chain initiatives).

Q&A:

• Question from Michael Genovese (Rosenblatt Securities): Can you talk more about component price increases hitting gross margin and plans to lift ASPs via Platform ONE or price increases?
  Response: Implemented low‑ to mid‑single‑digit price increases and supply‑chain actions to offset component inflation; expect gross margins to recover ~100–200 bps to ~63% by year‑end and Platform ONE is raising ASPs (management cited ~10–15% on cloud apps).

• Question from Michael Genovese (Rosenblatt Securities): Any impact from a federal government shutdown on revenue, and are you seeing more traction against Cisco or Juniper?
  Response: Little to no impact from the shutdown and growing federal opportunities after recent certifications; competitive disruptions at HPE/Juniper and Cisco partner changes are creating share‑gain opportunities for Extreme.

• Question from Ryan Koontz (Needham): Where are you in the commercial introduction of Platform ONE and what traction/metrics can you share?
  Response: Platform ONE is GA and adoption was ahead of expectations in Q1; customers can buy backwards‑compatible licenses now and broader migrations are expected after late‑year releases with more metrics to be disclosed at Investor Day/AI Summit.

• Question from Ryan Koontz (Needham): How should investors think about long‑term revenue growth relative to TAM and share gains?
  Response: Management expects TAM expansion (federal, MSPs, cloud choices) and is targeting ~10% FY growth now with an ambition to be a sustained double‑digit growth company driven by Platform ONE, services and new commercial models.

• Question from Ryan Koontz (Needham): What is the current MSP partner count?
  Response: 61 MSP partners.

• Question from Dave Kang (B. Riley): How do you respond to Cisco's partnership with NVIDIA—what's your countermeasure?
  Response: Extreme differentiates by embedding Agentic AI into networking (Platform ONE/service agent) rather than building AI compute infrastructure, positioning the company as a leader in AI‑driven network operations.

• Question from Dave Kang (B. Riley): The component price increases—was the impact roughly ~100 bps?
  Response: Yes—component cost headwinds (memory, optics, metals, expedite fees, tariffs) were on the order of ~100 bps; pricing actions effective Nov 1 plus other measures should offset the impact with full effect by Q3/Q4.

• Question from Dave Kang (B. Riley): Are price increases mid‑single digits?
  Response: Yes—price changes vary by SKU (some low single digits, some mid single digits), aligned with industry peers.

• Question from Dave Kang (B. Riley): Any FX impact this quarter?
  Response: Minimal FX impact due to balance sheet hedging.

• Question from Christian Schwab (Craig‑Hallum): What is the targeted long‑term gross margin (post‑recovery)?
  Response: Long‑term gross margin outlook remains ~64%–66%; near‑term component cost headwinds are expected to be corrected and Analyst Day will provide further detail.

• Question from Christian Schwab (Craig‑Hallum): Beyond the factors discussed, what is driving the 10% top‑line growth and strong bookings?
  Response: Growth is driven by fabric technology differentiation, Platform ONE, WiFi 7, new commercial/MSP models and competitor disruption enabling higher win rates and up‑market penetration.

• Question from David Vogt (UBS): Could you expand on pricing strategy if component costs worsen and why subscription gross margins were light sequentially?
  Response: Management believes current price increases are sufficient and does not plan another immediate increase; subscription gross margins are temporarily impacted by upfront Platform ONE cloud investments, but subscription margins are expected to be strong (targeting ~80%) and overall margins should recover to the long‑term range.

• Question from David Vogt (UBS): Have you disclosed BOM percentages related to optics/memory (e.g., 5%–10%)?
  Response: Not disclosed on the call; management said they will look into it and follow up separately.

• Question from Eric Martinuzzi (Lake Street): Was Q2 guide conservatively set given Q1 strength—were there pull‑forwards into Q1?
  Response: No material revenue pull‑forwards; some bookings came before price increases and are in backlog; midpoint guidance ($312M) implies sequential growth into Q2.

Contradiction Point 1

Impact of Federal Government Shutdown

It highlights differing perspectives on the impact of the federal government shutdown on the company's business, which could influence investor perceptions of financial stability and government market penetration.

What is the impact of the government shutdown on your business? - Michael Genovese (Rosenblatt Securities Inc.)

2026Q1: The shutdown has had little to no impact on our business. We've expanded our certifications, opening up larger opportunities in the federal market. - Edward Meyercord(CEO)

What are the trends in verticals, especially government demand? - David Vogt (UBS)

2025Q4: Government and education represent about 40% of revenue. Other sectors like retail, manufacturing, and health care are around 10% each. - Edward B. Meyercord(CEO)

Contradiction Point 2

Influence of Platform ONE on Revenue Growth

It involves differing expectations regarding the impact of Platform ONE on revenue growth, which is crucial for understanding the company's strategic focus and financial outlook.

How is the commercialization of Platform ONE progressing? - Ryan Koontz (Needham & Company, LLC)

2026Q1: Ed: Platform ONE is early in its lifecycle... Customers are seeing high adoption and excitement about capabilities like the service agent. Kevin: It was ahead of our expectations in Q1. - Edward Meyercord, Kevin Rhodes

How significant was Platform One to ARR bookings, and when are renewals expected? - Ryan Boyer Koontz (Needham & Company)

2025Q4: Platform One just hit GA, with opportunities in the funnel. Contributions to bookings are expected in the second half of the year as customers upgrade. Serious migrations will occur after the new year. - Edward B. Meyercord(CEO)

Contradiction Point 3

Impact of Component Price Increases on Gross Margins

It involves the effect of component price increases on gross margins, which is crucial for financial forecasting and investor confidence.

How are component price increases affecting gross margins and plans to address them? - Michael Genovese(Rosenblatt Securities Inc.)

2026Q1: We've seen prices in memory and optics increase. Mid-single-digit price increases will help mitigate these expenses, impacting Q3 and Q4. We expect gross margins to recover as we implement price increases. - Edward Meyercord(CEO), Kevin Rhodes(CFO)

What customer feedback have you received on tariffs and their plans for the next 6-12 months? What strategies will offset the $6 million COGS impact next year? - David Vogt(UBS)

2025Q3: $1.5 million impact baked into Q4 guidance with flat sequential gross margins; potential for price increases to offset impacts. - Kevin Rhodes(CFO)

Contradiction Point 4

Traction Against Competitors

It highlights differing views on the competitive landscape and market position, which can impact strategic decisions and investor expectations.

Are you seeing more traction against Cisco or Juniper? - Michael Genovese(Rosenblatt Securities Inc.)

2026Q1: Against Juniper, we're benefiting from talent acquisition, confusion about the tech roadmap, and the limitations of public cloud-only strategies. Against Cisco, their partner program overhaul may cause disruption and create opportunities for us. - Edward Meyercord(CEO)

Any updates on competitive trends with Cisco, Juniper, and HP? - Mike Genovese(Rosenblatt Securities)

2025Q3: HPE is struggling, facing challenges with their deal hold-up and potential price increases. Juniper is aggressive on pricing to win business. Cisco is strong, but moving away from enterprise networking; complications in their partner program create potential for market disruption. - Ed Meyercord(CEO)

Contradiction Point 5

Platform ONE and Commercial Introduction

It involves expectations and progress related to a key product launch, which can impact strategic positioning and market penetration.

How far along is Platform ONE's commercial introduction and adoption? - Ryan Koontz (Needham & Company, LLC)

2026Q1: Platform ONE is early in its lifecycle; currently, it's backwards compatible. Customers are seeing high adoption and excitement about capabilities like the service agent. - Edward Meyercord(CEO)

Can you elaborate on Platform ONE and its impact on the business? - Timothy Horan (Oppenheimer)

2025Q2: Platform ONE will allow us to offer a network operating system and management platform that is more than just a suite of products. - Ed Meyercord(CEO)