Extreme Networks CEO On Growing When Competition Is Shrinking: ‘The Evidence Is In The Growth’

While the tech industry suffers from large-scale layoffs, Extreme Networks had record hiring in the last six months. The company’s people and partners, according to CEO Ed Meyercord, are making all the difference and translating into double-digit revenue growth, while displacing the competition.

Extreme Networks CEO Ed Meyercord

Extreme Networks is on a roll in 2023.

The Morrisville, N.C.-based networking specialist last week announced its fiscal 2023 Q2 earnings in which Extreme posted revenue of $318.35 million for the quarter that ended December 31, up 13 percent compared to year-ago revenues. The company’s software-as-a-service (SaaS) ARR continued its climb, reaching $115 million, up an impressive 29 percent year-over-year. Extreme President and CEO Ed Meyercord revealed that the company was so confident in end user demand that it raised its FY23 revenue growth outlook. He expects the momentum to only continue into Extreme’s FY24, especially as the supply chain environment improves.

Meyercord has attributed the company’s success in part to being what he refers to as the “right size company to work with.” That feature gives Extreme the space to innovate on its focused, cloud-first networking portfolio, while giving partners and end customers the attention and resources they need to grow their businesses and solve problems.

At the mid-point of its fiscal 2023, Extreme has been busy investing in its differentiated cloud networking platform and Universal Hardware to provide choice and simplicity for customers. The focus is paying off: Extreme and its partners are increasingly winning when up against its competition -- some of the largest networking players in the industry, including Cisco Systems.

Meyercord sat down with CRN post-Q2 2023 earnings to talk about the company’s investments and growth, the “loosening” backlog, and a new managed services platform partners can expect in the second half of the company’s 2023. Here are excerpts from the conversation.

What areas is Extreme investing in this year?

We’ve made a lot of investments in bringing all of our systems up to be state of the art to make it easier to work with Extreme. All the platforms that we’re building in terms of our cloud platform, ExtremeCloud IQ, and Copilot automation tools, Digital Twin -- all these new technologies to make it easier for our enterprise customers and partners to deliver that high quality networking experience.

We continue to build momentum with ExtremeCloud IQ [cloud management platform]. We have a lot of differentiation in our cloud in terms of flexibility. You can be in AWS, GCP, Azure -- you pick the cloud platform. If you have a preference, we can provide that flexibility in terms of deployment options. With Copilot, we have a lot of enhancements around creating a virtual network environment to build, test [and] configure before you deploy the hardware, which is really innovative. Think about the amount of time, energy and money that saves for customers. If you need to make a change in configuration, or deploy network, then you can do it in the virtual world and then you can just add hardware and auto configure that. It’s a different kind of experience.

The other thing that we’re doing is with our Universal Hardware platforms [which] are the most flexible hardware platforms in the industry. You can buy a single piece of hardware and then you can manage and run different solutions from the same piece of equipment. So, there’s different -- we call them personalities -- that you could run from the same hardware. If you want to just shift and make an adjustment, you don’t have to physically remove hardware if you want to effectively change the solution, if you will. So, it’s this flexible hardware that we call Universal Hardware; we announced that it’s 60 percent of our sales, and that’s going to 90 percent over the course of the next 12 months. It’s been one of the fastest product transitions in our history as we migrated to this super flexible hardware, and then the ability to leverage flexible hardware to solve different problems, all managed from this cloud platform, from the core all the way to the edge, and now we’re extending across the wide area network [WAN]. It’s all about simplifying the experience and supporting customers and delivering this high-quality experience. You’ll probably see us lead the way in Wi-Fi 7 as well. We’re innovating and kind of first to market with the latest Wi-Fi technology and then all of that falls into cloud. Then, you’ll hear us talk about the evolution of SD-WAN and the extension of technologies from the core of the network out across the WAN that we think will be game changers and we have some releases coming up.

A lot of this is just around bringing these end-to-end solutions to enterprise customers, which is this one network, all managed from one cloud. Normally, there are many disparate management systems or platforms that people might use. In this case, we’ve got it all in one cloud. This is going to make it easier for the partner community as well as we pull all this together in a managed service. We are piloting a managed services platform with several partners with the anticipation of opening this up at the end of our fiscal year. These are all the excited things we’re working on, and all these investments are bringing new growth opportunities to Extreme.

How important will the new managed services platform be for Extreme partners?

If you look at network management, there’s not really a single managed services platform that’s out there. In the channel community, if we were to poll and ask 100 channel partners about their management, we might get 100 different flavors. So, part of part of what we’re doing is we’re working with a handful of partners globally and we’re going to create a few different flavors of managed services. Then, we’ll be in a position to roll that out. We can be very prescriptive about the platform and what we can bring. We’re really excited about it because the way that we’re building our cloud; the orchestration capabilities of our cloud, we’ll be able to bring and support a lot of services that we can orchestrate and deliver through our cloud platform. So, it goes back to this one single cloud [in which] we’re orchestrating services. And all the services we’re talking about don’t have to be tethered to equipment. So, there’s a lot of excitement around that.

I’m getting a little ahead of myself -- it’s not available yet, but you have to invest early. We’re investing to support partners on that journey [and] we see more and more customers want to go there. And we think because of our size and how we can work with partners, we can be very flexible and build a few different options in terms of platforms, and then really simplify it because at the end, it gets really complicated if you’re trying to if you’re trying to combine a lot of different elements of a managed service. It can get really complicated. We’re going to bring the same tenets of simplicity into managed services and the managed service platform.

SaaS ARR grew again -- this time up 29 percent year-over-year and 6 percent quarter-over-quarter. As this metric keeps growing for Extreme, what do you think is driving that growth?

I think that that growth rate will increase because keep in mind, most of our most of our software subscriptions are held up in backlog and the way that it works is that people aren’t going to start buying software to manage a device that they don’t have yet. So, we have to ship the equipment and then as the end user deploys the hardware, they activate the software license. So, there’s a bit of a lag effect that takes place [with] a pent-up backlog of software, but it’s going to flow. I think you’ll see that that 30 percent growth in our SaaS ARR -- that’s pure software subscription -- You’ll see that that growth rate accelerate in the future.

We also have record cashflow and that’s the health of the business. When you have when you have the cash flow, you can invest in growth. With the backlog and then with the strength of all of our bookings on the demand side … you’re going to see the growth rate step up. This is an unprecedented time for us where we have all these investment opportunities and fortunately, some great idea on where to invest.

Partners are essential to the growth. In making it easier for partners to work with Extreme and then making it easier for our partners to position Extreme, partners are realizing that they can win, and it’s become a lot easier to position Extreme and win in competitive situations. We’re really thrilled with the channel and how we’re taking wallet share in the channel, and we’re making it easier for our channel partners to make money with Extreme and to drive their business. I think the channel can feel the investments that we’re making into all the things we do to support partners, and then all the technology solutions that are truly differentiated that they can use to deliver much better outcomes for end user customers.

How is the backlog and are supply chain constraints improving?

It is loosening. And that was part of the reason why we beat [Wall Street] in terms of our revenue. That’s really related to supply chain because we were able to release a lot more product. We’re seeing that loosening and we’re expecting to see that continue. It’s not [something] where you’ll see a massive leap, and then we’ll just complete all the backlog. We see a backlog release happening over the next 10 quarters before we’re truly normalized. As supply chain normalizes, we expect to see that backlog get normalized over through the end of our fiscal year 2025, [which begins in June 2024].

Why is Extreme still seeing double-digit growth when some of the bigger competitors in this space are struggling to grow at all?

I think it’s [about] the people at Extreme and being able to be in a position to be different, to make a difference, and to deliver a higher quality experience. I think ultimately, it’s the higher quality experience that we can bring as a smaller company. We’re a company that’s close to 3,000 people -- we’re a decent-sized company and we’re global. But if you’re an employee, if you’re a customer and if you’re a partner, I think it’s a higher quality experience with Extreme.

We’re also solely focused on delivering cloud-driven networking. Security, obviously, is part of that networking experience. Cloud is part of the networking experience today. We believe we have the highest quality cloud. We just had the largest win in Extreme’s history with a massive company and it’s a really impressive displacement, and this customer is just blown away by the quality of experience that they have with Extreme. Success begets success. We have 44 customers with over a million-dollar order in the quarter. That continues to grow. The size of customers that we’re dealing with continues to step up because people are realizing that it’s a better experience if you’re working with Extreme.

You’ve talked about Extreme being the right size company to work with. Does this still ring true in 2023?

No doubt. And I think it has to do with Gartner and being in the Magic Quadrant for the fifth year in a row, but there’s also a Gartner Customer Choice award. We’re always number one because the customers just feel a different level of intimacy with Extreme and I think it has to do with how we work with customers and the fact that we can make a difference. What does it all mean? It all boils down to growth. On the hiring front, when you have strong employees and strong customer relationships, it usually has to do with the quality in the workplace. We had record hiring for Extreme in our [fiscal] second quarter and we’re going to break that record, likely in Q3, if not Q4, because we’re actively hiring. Overall, tech is seeing layoffs and issues around either growth or expense tightening, etc. We’re actually growing and we’re seeing a lot of investment opportunities.

I think a lot of the opportunities are around how we can help customers solve problems with our technology. The network today, it’s strategic. You can leverage the network in new ways to help you drive your business outcomes. If you’re a school, your outcomes might be different than if you’re in healthcare, or if you’re manufacturing or government. So, it’s all about the power of the network and then the new tools you have with cloud in terms of enhanced visibility, being able to see the network end to end, and then the tools that help you drive automation. Machine learning that helps you predict or see things that you couldn’t see before, and then making it easier to resolve and mitigate issues -- All of this kind of comes together and this is where we shine. It’s really [about] our cloud platform and how we’re making it easier to deliver this high quality, secure experience with enhance visibility and better tools. I think all that’s contributing, and the evidence is in the growth. There’s the financials, but it’s also our record hiring and our turnover is the lowest in the industry -- our turnover is less than half the industry. At the end of the day, I think people feel like they can make a difference at Extreme. And that’s why people say they love the culture, they like the people they work with, and they feel like with a company our size, they can make a difference and have a higher level of customer touch.

Networking is complicated and you’re always going to have issues. So, the question then is, how do you respond to and help customers through networking issues. That’s where I feel like we really shine -- we’re 100 percent insourced in terms of our customer service. Technical assistance, technical support, whenever you have an issue with Extreme, the person who picks up the phone is the person who helps you solve your problem. And then we’ve developed a lot of self-help tools. There’s a lot of capabilities that we’re building into our cloud platform all around just simplifying the experience for the people who are delivering the networking experience.