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

Good morning, ladies and gentlemen. On behalf of Extreme Networks, I would like to thank you for attending our 2021 Virtual Annual Meeting of Stockholders. I am John Shoemaker, Chairman of the Board of Extreme Networks. We have stockholders attending via the web portal and the 800 number we have provided you. Though we may not be able to answer every question, we will do our best to provide a response to as many as possible and will address unanswered questions on our corporate website shortly after the meeting. It is now shortly after 8:00 a.m. Eastern Standard Time, and I will now call the 2021 Annual Meeting to order. I would like to start by introducing the other nonemployee members of our Board. Ingrid Burton, Charles Carinalli, Kathleen Holmgren, Raj Khanna and Edward Kennedy. I would also like to introduce the other members of Extreme's management who are connected. Edward Meyercord, our CEO; Rémi Thomas, our CFO; Katayoun Katy Motiey, our Chief Administrative and Sustainability Officer. Also connected are Jessica Knott and Daniel Allustiarti of Grant Thornton LLP and Jim Minter of Ernst & Young LLP. The Board has appointed Broadridge Financial Solutions, Inc. to act as Inspector of Elections. Beth W. VanDerbeck, a representative of Broadridge, has previously taken her oath as Inspector of Elections. After the formal meeting has been adjourned, we will provide time for general questions. Only validated stockholders may ask questions in the designated field on the web portal. Out of consideration for others, please limit yourself to 2 questions and questions must be germane. Please note that this meeting is being recorded. However, no one attending via the website or telephone is permitted to use any audio recording device. At this time, I will ask Ms. Motiey to begin the formal portion of the meeting.

Thank you, John. Before acting on the matters set forth in the notice of meeting, let me cover some procedural points. If you have sent in a proxy card or delivered one prior to the meeting and do not revoke it at this meeting, your vote will be counted automatically without any further action on your part. If you still have a proxy card, which you wish to have voted, please click on the voting button on the web portal and follow the instructions provided. If you've previously delivered a proxy card, which you now wish to revoke, please click on the voting button on the web portal and follow the instructions provided. If you wish to vote your shares in person, then please click on the voting button on the web portal and follow the instructions provided. Mr. Chairman, Broadridge Financial Solutions, Inc. has provided the company with an affidavit of mailing, which states that the notice of meeting and accompanying proxy materials and annual report were mailed on or about September 23, 2021, to stockholders of record on September 13, 2021. The record date for stockholders entitled to notice of meeting. I have been advised by the inspector of elections that a majority of the 129,709,947 shares outstanding and entitled to vote as of the record date are represented in attendance or by proxy at the opening of this meeting. Therefore, a quorum is present, the meeting is duly constituted and the business of the meeting may proceed.

Thank you, Katy. The report of the Secretary on the existence of a quorum is accepted. I direct that the affidavit of mailing be made part of the minutes of the meeting. We may now proceed to transact the business for which this meeting has been called.

The first matter to come before the meeting is the election of directors. The following individuals have been nominated for election to the Board to serve until the 2022 Annual Meeting. Ingrid Burton, Charles Carinalli, Edward H. Kennedy, Raj Khanna, Kathleen Holmgren, Edward Meyercord and John C. Shoemaker. The Board has recommended that the stockholders vote for each nominee. The company's bylaws require that a stockholder provide advanced notice to the company of a stockholder's intent to nominate persons as directors. No such notice was received. Accordingly, I declare the nominations for directors closed. Voting will commence after all proposals have been presented. The second matter to come before the meeting is to hold an advisory vote to approve the compensation of the named executive officers as disclosed in the proxy statement. The Board has recommended that the stockholders vote for the approval of the compensation of our named executive officers as disclosed in the 2020 proxy statement. The third matter to come before the meeting is the ratification of the appointment of Grant Thornton LLP as the company's independent registered public accounting firm for the first full year ending June 30, 2022. The Board has recommended that the stockholders ratify the appointment of Grant Thornton LLP as the company's independent registered public accounting firm. The fourth matter to come before the meeting is the approval of our amended and restated tax benefit preservation plan. Amends and restates that agreement through May 17, 2024. The Board has recommended that the stockholders approve the amended and restated tax benefit preservation plan. The fifth matter to come before the meeting is the approval of an amendment and restatement of our 2014 employee stock purchase plan. The Board has recommended that the stockholders approve the amendment and restatement of the 2014 employee stock purchase plan. The sixth matter to come before the meeting is the approval of an amendment and restatement of our equity incentive plan to, among other things, add 7,900,000 shares of our common stock to those reserved for issuance under the plan. The Board has recommended that the stockholders approve the amendment and restatement of the equity incentive plan. The seventh matter to come before the meeting is the stockholder proposal regarding simple majority voting, if properly presented at the 2021 Annual Meeting. Mr. Chevedden, you are recognized for a period of 3 minutes to present the proposal. Will the operator please unmute the line?

Hello. This is John Chevedden. Can you hear me okay?

Yes.

This is Proposal 7, supermajority vote sponsored by Kenneth Steiner. Shareholders request that our Board take each necessary step so that each shareholder voting requirement in our charter and bylaws that calls for a greater than simple majority vote be replaced by a requirement for a majority of the votes cast for and against such proposals. Shareholders are willing to pay a premium for shares of companies that have excellent corporate governance. However, supermajority voting requirements have been found to be 1 of 6 entrenching mechanisms that are negatively related to company performance according to What Matters in Corporate Governance? by Lucian Bebchuk of the Harvard Law School. Supermajority vote requirements are used to block initiatives supported by most shareholders but opposed by a status quo management. This proposal topic won from 74% to 88% support at Weyerhaeuser, Alcoa, Waste Management, Goldman Sachs, FirstEnergy and Macy's. These votes would have been higher than 74% to 88% if more shareholders had access to independent proxy voting advice. This proposal topic also received overwhelming 99% support at the 2019 Fortive annual meeting. This proposal topic is more important after shareholder support of management in 2019 showed weakness. The amended incentive plan was rejected by 30% of shares. The say on management pay proposal was rejected by 11% of shares when 5% is the norm. Currently, a 2% minority can frustrate the will of our 66% shareholder majority in an election with 67% of shares cast in ballots. In other words, a 2%-minority could have the power to prevent shareholders from improving the governance of our company. Also, a 67% supermajority can amount to an 85% supermajority of the shares that normally vote at the annual meeting. A competitive management has no need to hide behind an 85% supermajority vote barrier. Currently, the role of shareholders is downsized because management can simply ignore an overwhelming 66% vote of shareholders. Please vote yes, simple majority vote proposal 7.

Thank you. Will the operator please now mute the line. The Board has unanimously recommended against the stockholder proposal. If any stockholder would like to make a comment regarding any of the proposals, please submit your comments through the web portal. Because no further business is scheduled to come before the stockholders, I declare the polls for each matter to be voted on at this meeting open at 8:11 a.m., November 4, 2021, and direct that a vote of the stockholders be taken. Any stockholder who hasn't yet voted or wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. Stockholders who have sent in proxies are voted via telephone or Internet and do not want to change their vote, do not need to take any further action. I declare the polls for each matter voted upon at this meeting closed at 8:11 a.m. Eastern Time today, November 4, 2021, and direct the Inspector of Elections to tabulate the ballots. At this time, I would like to introduce Jessica Knott and Daniel Allustiarti, from Grant Thornton LLP and Jim Minter from Ernst & Young. They will have the opportunity to make a statement or answer any appropriate questions you may have Jessica, Dan, do you have any comments. Okay.

At this time, I will ask Ms. Motiey to report the preliminary voting results on the proposals.

Thanks, John. As Ingrid Burton, Charles Carinalli, Edward Kennedy, Kathleen Holmgren, Edward Meyercord and John Shoemaker are the nominees receiving the highest number of affirmative votes of shares present in person or by proxy. The proposal is approved and each of the nominees is elected. Proposal 2 is approved with at least the majority of the shares cast vote in favor and the compensation of the named executive officers as disclosed in the proxy statement is approved. The fiscal ratification of auditors, Proposal 3 is approved with at least a majority of the shares cast voting in favor, and the appointment of Grant Thornton LLP as the company's independent public accounting firm is ratified. Approval and amendment and restated tax benefit preservation plan. Proposal 4 is approved with at least the majority of the voting power of our outstanding shares cast voting in favor, and the amended and restated tax benefit preservation plan is approved. Proposal 5 is approved with at least the majority of the shares cast voting in favor, and the amendment and restatement of our 2014 employee stock purchase plan is approved. Proposal 6 is approved with at least the majority of the shares cast voting in favor, and the amendment and restatement of our equity incentive plan is approved. Proposal 7 is approved with at least the majority of the shares cast voting in favor, and the stockholder proposal regarding simple majority voting approved. The Inspector of Elections will furnish the company with a written report of the final vote count with respect to the matters voted on today, which will be included in the minutes of the meeting. This concludes the formal business to be brought before the meeting. I will entertain a motion to adjourn.

I so move.

The motion is carried. The formal business portion of the meeting stands adjourned. At this time, our Chairman and CEO will answer questions from our stockholders.

Now we would like to open the floor for stockholder questions and comments. We can begin with any that we received in advance of today's meeting. We will then take stockholder questions that are being entered today on the web portal. Please note, we will attempt to answer as many questions as time allows, but only questions that are germane to the meeting will be addressed. Germane questions that we do not get to will be addressed on our company website. Are there any questions that anyone would like to ask management.

So John, we have 2 questions from a shareholder, and that I will ask Ed to respond to. The first question is how are new acquisitions financed?

Thank you, Katy, and thank you for the question. We use cash on hand as well as debt financing to finance our acquisitions.

Okay. Great. And then the second question is give an example of how the pandemic-induced changes will positively impact our business going forward.

Another great question. The pandemic plays right into the hand of our strategy at the Infinite Enterprise as more employees are working from home. And so we have a more, what we would call distributed enterprise because of the edge of the network extends to where people are working, and that plays right into our Infinite Enterprise strategy, where we are infinitely distributed, where we're infinitely scalable and where we are working and we have an industry leadership position in delivering consistent, high-quality user experience on any device wherever they are, and that is the Infinite Enterprise. And that has really been accelerated by the pandemic. So as far as changes that were caused by the pandemic, it has had a positive impact on our business going forward because it's accelerated the enterprise market and the trends of the enterprise market, which is right in line with our leadership position for the Infinite Enterprise.

Great. So I think we had 2 questions per shareholder, and those 2 came in. So I'll turn it over to John.

Not seeing any further questions. On behalf of the Board, I thank you for your attendance today and your continued support of Extreme Networks. That concludes our meeting today. Thank you.

Thank you, John.

This now concludes the meeting. Thank you for joining, and have a pleasant day.