Extreme Networks (NASDAQ:EXTR) shares plummeted Wednesday following its latest quarterly earnings report, in which it missed consensus estimates and posted weaker-than-expected third-quarter guidance.
The company reported Q2 EPS of $0.24, $0.01 worse than the analyst estimate of $0.25, while revenue for the quarter came in at $296.4 million, down almost 7% year-on-year and below the consensus estimate of $303.02 million.
EXTR said 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 their business, with distributors and partners having lowered inventory purchases, which EXTR expects to accelerate in the third quarter.
"We expect to emerge in the fourth quarter at a more normalized level of revenue and earnings," said Ed Meyercord, president and CEO of the company. "We’re seeing stabilization across EMEA and growth in APAC."
Kevin Rhodes, EXTR's Chief Financial Officer, stated: "Despite lower revenue in the second quarter, we improved our gross margins and optimized our operating expenses to maintain a healthy operating margin profile during the quarter.
"In the third quarter, we expect higher sell-through than sell-in, which will have a more significant impact on our operating results. As a result, we plan to take cost actions to drive a recovery in EPS and cash flow."
Looking ahead, Extreme Networks sees a Q3 2024 loss per share between ($0.22) and ($0.17), versus the consensus expectation for a profit of $0.28 per share. Revenue guidance also missed expectations, with the company expecting Q3 revenue between $200 and $210 million versus the consensus of $321 million.
Reacting to the report, analysts at Lake Street Capital said the company was tracking to projections throughout October and November, but December was below expectations.
"Deals were not lost to competition, they just did not close," they wrote. In some cases, verbal affirmations were countermanded and signatures did not follow. The company felt it made a conservative estimate of Q2 channel digestion but it proved too optimistic."
The analysts, who have a Hold rating and a $17 price target on the stock, said key markets in Europe continue to suffer from sluggish demand, with Germany, in particular, a pain point.