Extreme Networks, Inc. (EXTR) recently released its second-quarter financial results, which were met with mixed reactions from investors. The company reported a 6.9% decline in revenue, reaching $296.37 million, slightly surpassing the consensus estimate of $295.61 million. However, adjusted earnings per share (EPS) fell short of expectations, coming in at 24 cents compared to the consensus estimate of 25 cents.
One of the main contributors to the decline in revenue was a significant slump in product revenue, which dropped by 16.5% to $186.6 million. On the bright side, subscription and support revenue experienced growth, increasing by 15.7% year over year to $109.8 million. Additionally, the company’s Software as a Service (SaaS) annual recurring revenue (ARR) reached $158.0 million, marking a substantial 37.4% YoY growth.
Despite the mixed results, Extreme Networks provided guidance for the third and fourth quarters. The company expects total net revenue of $200 million to $210 million for the third quarter, well below the street estimate of $321.305 million. Adjusted EPS for the same period is projected to be between $(0.22) and $(0.17), compared to the consensus estimate of $0.28. For the fourth quarter, Extreme Networks expects revenue in the range of $265 million to $275 million, while the street estimate stands at $355.32 million.
Ed Meyercord, President and Chief Executive Officer of Extreme Networks, acknowledged the impact of ongoing supply chain constraints on the company’s business. He stated, “The networking industry, like much of IT, is exiting the final stage of the COVID-induced era of supply chain constraints, which is still impacting our business. As a result, our distributors and partners have lowered inventory purchases, which we expect to accelerate in the third quarter. We expect to emerge in the fourth quarter at a more normalized level of revenue and earnings.”
Following the announcement of the quarterly results, Extreme Networks’ shares experienced a significant decline of 18.8%, closing at $13.51 on Wednesday.
Several analysts have revised their price targets for Extreme Networks after the earnings report. UBS reduced the price target from $22 to $14 and downgraded the stock from Buy to Neutral. Needham also lowered its price target, moving it from $23 to $16.5, while maintaining a Buy rating on the stock.
It remains to be seen how Extreme Networks will navigate the challenges posed by the ongoing supply chain constraints and regain investor confidence. As the company anticipates a return to a more normalized level of revenue and earnings in the fourth quarter, stakeholders will closely monitor its performance in the coming months.
