Extreme Networks, Inc. (EXTR) Earnings Call Transcript & Summary

Good day, and thank you for standing by, and welcome to the Extreme Networks, Inc. Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Stan Kovler. Please go ahead.

Thank you, operator. And thank you all for joining us this morning on such short notice as we discuss Extreme Networks' agreement to acquire the SD-WAN business of Infovista called Ipanema. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations. And with me today are Extreme Networks' President and CEO, Ed Meyercord; our CTO and Chief Product Officer; Nabil Bukhari; and CFO, Rémi Thomas. We just distributed a press release on this announcement, and an 8-K is forthcoming. For your convenience, the copy of the press release and the presentation we will be following in today's prepared remarks is available on the Investor Relations section of our website at extremenetworks.com under Events. I would like to remind you that during today's call, our discussion may include forward-looking statements about Extreme Networks' future business and financial results and other items. The details can be found in both the press release we issued about this announcement and in the presentation slides we are discussing today. We caution you not to put undue reliance on these forward-looking statements as they involve risks and uncertainties that can cause actual results to differ materially from those anticipated by these statements as described in our risk factors and our reports filed with the SEC. Any forward-looking statements made on this call may reflect our analysis as of today, and we have no plans or duty to update them, except as required by law. With that, I will now turn the call over to Extreme Networks' President and CEO, Ed Meyercord.

Thank you, Stan, and thank you all for joining us this morning. When we spoke with you just 2 weeks ago to announce our Q4 '21 results, I noted that Extreme is in the strongest competitive position it's ever been in. And this is evident in our industry leadership and significant growth opportunities in 2 of the fastest growth segments in our industry, cloud-driven enterprise networking and 5G network infrastructure services. Customers are accelerating their return-to-work environments that are more flexible and hybrid in nature, supporting our Infinite Enterprise vision. The networking industry is set to experience the highest growth in years given this new normal, and global stimulus spending is also fueling growth as we come out of this historic pandemic. As I noted recently, our success with cloud has really been about on our main SaaS application, XIQ. Now with a leadership position in cloud, strong balance sheet and unified vision and portfolio, we're making investments in our business to monetize the secular trend towards more software services with a complete migration to cloud. As we note on Page 4 of our slide deck, today, we are accelerating our vision for the Infinite Enterprise with the proposed acquisition of Infovista's cloud-driven SD-WAN business, commercially known as Ipanema. This deal will provide us greater access to the fast-growing cloud-driven SD-WAN market and expands SaaS business and recurring revenue with new ExtremeCloud apps. We're buying this app -- this asset for EUR 60 million or approximately $73 million in an all-cash deal funded from our balance sheet. We expect it to close by the end of October. We believe Ipanema has unmatched technology in the areas of cloud-managed application visibility and control, and it will be the foundation of our SASE ecosystem development. Following the acquisition of Ipanema, Extreme truly enters the accelerate phase of our recent transformation efforts. We have the scale to compete. We have cloudified our business, and we have innovated organically with 2 hardware refresh cycles over the past 2.5 years, the most recent and ongoing ones serving to unify all of our hardware and to take our solutions to the cloud. As our hardware enter the cloud management era, it is now time to bring new applications on top of our ExtremeCloud platform. The SD-WAN market is expected to grow at 20% through 2025, as we reference on Page 6. The SD-WAN market in North America is much more saturated, mature than in EMEA, where just 25% of the market revenue currently comes from. While we will take Ipanema's solutions to our Americas customers in the very near future, we expect the next 12 months to be more about investing in technology to bolster the cloud capabilities and accelerate feature development and convergence with what Extreme have been planning in this space. We plan to take advantage of Ipanema's existing European go-to-market footprint. As Nabil will discuss in greater detail, Ipanema is a proven solution for the WAN Edge with over 100,000 sites deployed at over 400 customers across more than 25 countries. The core focus of the team is on the mid-market, which aligns very well with Extreme's market presence for turnkey solutions. We expect to bring approximately 80 employees, half of whom will be in R&D. Ipanema provides us with an additional center of excellence for R&D in Europe and Massy, France, and is part of the Paris-Saclay tech center with high-level companies and universities located just south of Paris. With more than half of its revenue split between France and U.K., Ipanema has great relationships with European-managed service providers such as Orange Business Services and BT, among others. We look forward to introducing these solutions to the Extreme channel community in short order. And with that, I'll turn the call over to our CTO, Nabil Bukhari.

Thank you, Ed, and good morning, everyone. The way people work, connect, learn, shop and get services in their daily lives have become more fluid and highly distributed, extending the edge of the network to a point where it is fast dissolving away and in turn, creating the Infinite Enterprise. All businesses must respond to this new reality. All businesses must become infinite, and there are 3 main outcomes that businesses are looking for: number one, infinite scale, to reach workers, clients and customers wherever they are; number two, become more consumer-centric. They need technologies to know and deliver the experiences consumers want. And number three, scale, the ability to scale up their talent, teams and resources to meet the demands of their businesses. As we were looking to find an asset to accelerate this vision, Ipanema fits perfectly with this vision. The Ipanema acquisition will strengthen Extreme's mission of enabling Infinite Enterprise. With Ipanema, we'll be able to help customers with the infinite distribution of connectivity and security and deliver it through cloud. It will also help us provide the best possible application experiences for our customers and their consumers wherever they are in the Infinite Enterprise journey. Furthermore, Ipanema's cloud-driven technology will fit well with Extreme's cloud-first strategy and expand our ExtremeCloud portfolio, further reinforcing our competitive differentiation in the market. Ipanema's technology is second to none and brings strong SD-WAN capabilities, application control and visibility, cloud management and operational simplicity to ExtremeCloud portfolio, and will be seamlessly interoperable across our universal platforms. As Ed alluded, Ipanema's cloud technology will provide a perfect platform to bring in future SASE components. We will expand our SASE offerings through technology ecosystem partnerships that leverage this platform. So what will we get with Ipanema? One of the main differentiators Ipanema brings is business continuity. Applications are the bloodlines of today's businesses, and they are delivered not just from corporate data centers but from an ever-increasing number of public cloud and SaaS offerings. We believe Ipanema technology will help guarantee the performance and user experience of these critical applications over any LAN network using cloud-based policy and orchestration. The performance is driven by a cloud-native SD-WAN solution that includes application visibility and monitoring, multi-cloud connectivity, orchestration and multiple levels of security. Increasing distances between sites bring connectivity and performance challenges. The CloudMesh technology from Ipanema helps customers to effortlessly create a full mesh connectivity between sites, data centers and provides multi-cloud on-ramp anywhere in the world. This low-latency, high-speed global backbone from Equinix is integrated right into Ipanema cloud-driven SD-WAN application and allows customers to migrate workloads to the cloud and carry out other digital transformation initiatives from anywhere in the world with highest standards of performance and connectivity. Security is top of mind for everyone, but there is no single answer to this ever-complicated question. Every customer has different needs. While essential security features like zone-based firewalls are built right into Ipanema technology, advanced security features are delivered through their solution called EdgeSentry, which is based on their ecosystem technology partner, Checkpoint, which delivers firewall as a service and other advanced security capabilities. Managing all of the above capabilities is an orchestrator function delivered from the cloud that enables a networking ecosystem for customers across SD-WAN, network security and multi-cloud environments. In fact, Ipanema has a dedicated cloud ops team that does this for the customers. The combination of these capabilities provide a cloud-first delivery mechanism and a pay-as-you-go consumption model. But all of this technology must benefit customers and deliver measurable outcomes. Let me share a couple of examples from current Ipanema customer base. A leading logistics company in Europe that originally used the WAN Ops product migrated to the new cloud-driven SD-WAN solution for managing their WAN and application experiences and yielded 50% saving versus basic WAN Ops. A leading global manufacturing customer wanted to protect its key cloud-based internal applications, such as Office 365, its ERP and another proprietary configuration tool. Ipanema's technology provided cost-effective cloud-driven SD-WAN migrations to improve performance for critical WAN applications. Another example, an IT consultant and partner helped a large European trade union decrease its IT problem tickets by 50% simply by deploying Ipanema cloud-driven SD-WAN and reducing network congestion and improving application performance. And finally, a major U.K.-based retailer operating 1,300 stores transforms its customer experience and achieved a 40% increase in customer conversion and Net Promoter Score-based satisfaction by powering an in-store customer journey application with Ipanema's technology. As I mentioned earlier, Ipanema's technology will become part of our ExtremeCloud portfolio of applications. Our goal is to complete this integration in the next 6 to 9 months and drive towards a SASE ecosystem. As we show on Slide 13, Ipanema provides Extreme with some of the key pieces of SASE, such as SD-WAN, and a slew of security features, both organically and through API integrations with strategic ecosystem partners. All of this, combined with Extreme's edge compute and capabilities, market-leading cloud architecture will provide a compelling offering to our joint customers and solidifies our SaaS road map. We have the highest quality and the most advanced cloud in the industry, and it's also the fastest growing. We will be able to quickly upgrade Ipanema's platform to this latest cloud-native architecture. Reiterating what Ed said before, we are very excited about the talent joining us from Ipanema. We believe it will further strengthen our leadership position in networking and accelerate our speed of innovation in cloud-driven technologies. Before we turn it over to Q&A, I know Rémi has some brief financial remarks that he would like to make. So I'm going to hand it over to Rémi Thomas, our CFO.