Preliminary F3Q21 Results: 21% YoY Revenue Growth Drives Top & Bottom Line Beats

Key Points

  • Extreme described itself as “coming out of COVID in a stronger position than ever before,” with revenue of $253 million, which was $8 million above consensus. Non-GAAP EPS was $0.16, which was also above the consensus of $0.13. Non-GAAP gross margin came in at 61.5%, and a non-GAAP operating margin of 11.3%. The company expects to realize “meaningful” interest expense savings beginning in F4Q21 driven by its stronger financial position.
  • Positive trends include the company’s “most successful product launch” ever with 6520, its first universal hardware platform product. Future universal hardware product launches are expected this year, and the company expects some, but limited, benefit to gross margin because of the universal hardware platform, saying it would likely be in the “tens of basis points” range. Also Sports and Entertainment verticals began to recover in the quarter.
  • Possible concerns include product book-to-bill, which was down from 1.23x in 2FQ21 to 1.06x in 3FQ21. Recurring revenue was also down slightly sequentially from $74.3 million to $73.9 million in 3FQ21. Manufacturing and Retail are seeing a flat demand and are still experiencing lower than pre-COVID demand levels. F4Q21 gross margin guidance of 60.5-61.5% is below F3Q21’s 61.5% due to higher component costs.
  • Guidance for 4FQ21 for $260-270 million in revenue is above consensus of $253 million, non-GAAP EPS guidance is $0.16-0.20, above consensus of $0.16 at the midpoint. The company believes it is in a “favorable” supply chain situation compared to its competitors.
  • The stock is trading at a forward P/S of 1.22x, slightly near its two-year high P/S of 1.24x back in February.