Q2 2024 Extreme Networks Inc Earnings Call
Participants
Stanley Kovler; VP of Strategy and IR; Extreme Networks Inc
Ed Meyercord; President & CEO; Extreme Networks Inc
Kevin Rhodes; Chief Financial Officer; Extreme Networks Inc
Eric Martinuzzi; Analyst; Lake Street Capital Markets
Timothy Horan; Analyst; Oppenheimer & Co., Inc.
David Vogt; Analyst; UBS Securities
Christian Schwab; Analyst; Craig Hallum
Dave Kang; Analyst; B. Riley Securities
Alex Henderson; Analyst; Needham & Company Inc.
Presentation
Operator
Good day and thank you for standing by and welcome to Extreme Networks Second Quarter Fiscal Year 2024 financial results conference call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session to ask a question. During the session, you will need to press star one morning. In your own, you will get an automatic versus comprising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Stan Kovler, Vice President, Corporate Strategy, Investor Relations.
Stanley Kovler
Please correct Thank you, Olivia, and good morning, everyone, and welcome to Extreme Networks Second Quarter 2024 earnings conference call. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations with me today are Extreme Networks' President and CEO, Ed Meyercord, and Executive Vice President and CFO, Kevin Rhodes. We just distributed a press release and filed an eight K detailing Extreme Networks' financial results for the quarter. For your convenience, a copy of the press release, which includes our GAAP to non-GAAP reconciliations, is available in the Investor Relations section of our website at extremenetworks.com, along with our earnings presentation for today's call, and our discussion may include forward-looking statements based on our current expectations about Extreme's future business, financial and operational results, growth expectations and strategies and all financial disclosure on this call will be made on a non-GAAP basis. Unless stated otherwise, we caution you not to put undue reliance on these forward-looking statements. As they involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements. These risks are described in our risk factors and the 10 K report for the period ended June 30th, 2023, and subsequent 10 Q reports filed with the SEC. Any forward-looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them except as required by law.
Following our remarks, we will take your questions now I will take the call over turn the call over to Extreme's President and CEO, Ed Meyercord.
Ed Meyercord
Thank you, Stan, and thank you all for joining us this morning. Our second quarter results were in line with our previously announced revised Q2 outlook. We did have some highlights in the quarter. Saas ARR grew 37%, which reinforces the value of our differentiated cloud platform. We had 44 customers who spent over $1 million on extreme solutions, demonstrating both customer retention and our ability to take new logos, larger competitors and gross profit of 62.5% showing continued improvements and the benefit of a higher mix of high-margin recurring revenue. At a high level, the networking industry is exiting the final stage of the COVID-induced era of supply chain constraints which has significantly impacted our business. We've made the conscious decision to put channel digestion behind us in the March quarter. 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 much more normalized level of revenue and earnings. Our booking our bookings trends and funnel of new opportunities are strong indicators of customer demand. While larger deals are still experiencing elongated sales cycles, particularly in North America, we continue to win against the competition on a bookings basis with an uptick in new logos. Our EMEA business has stabilized and grew from the prior year, and A-Pac bookings continue to grow over the prior year. In addition to sequential and year-on-year funnel growth. We grew the number of transacting partners accounts and deal volume during the quarter. These trends and the expanded go-to-market opportunities give us confidence that we are positioned for return to meaningful growth in fiscal 25. We've attracted a growing list of 14 managed service provider partners exiting the second quarter. With evidence already driving transactions. We're positioned to expand our MSP footprint as partners are drawn to the simplicity of one cloud, the flexibility of our unified hardware and our unique consumption billing model. We make it simple for these service providers to deliver seamless, high-quality networking experience to their customers. We've also made inroads establishing a private subscription offer through a highly targeted list of large service providers has noticed it is as noted at our November Investor Day, this market segment opens a $5 billion addressable market. In November, we introduced IQstream cloud, Universal ZTNA., the first network security offering to integrate network application and device access within a single solution. This helps move organizations to a zero trust policy for all devices across the network. This combined with our industry-leading campus fabric solution extends our value proposition and helping customers both manage and secure their networks. Yesterday, we launched new WiFi seven access points and the 4,000 series universal switches designed to help highly distributed enterprise organizations create improved network connectivity, security and application performance. Both of these new cloud-managed platforms, leverage AI ops to machine learning to deliver faster remediation and enhanced network visibility. These new products also integrate well with extreme cloud, Universal ZTNA. to enhance network security posture, the integration of AI. security and analytics into a single platform as a key differentiator for as extreme as it allows us to bring greater simplicity and flexibility for customers. This is why we continue to win large deals with manufacturers like LG Energy Solutions leading health care facilities like NHS Trust, hospitals and UK educational institutions like London, Southbank University, Leeds, Beckett and Kingston universities and large venues like Wells Fargo Center and Canada Life center. I've made previously announced leadership changes to streamline and strengthen our go-to-market capabilities. Earlier this month, Norman Rice was appointed as our Chief Commercial Officer and is now focused on driving revenue growth and leading the company's sales partner and services organization. He successfully built our go-to-market sales motions in stadiums and venues, driving large opportunities with Verizon and Clover and has been at the forefront of driving our new commercial opportunities with large service providers. He has valuable experience managing revenue operations with deep knowledge of our complex supply chain environment. Our Chief Product and Technology Officer in the field with Hari is focused on increasing our SaaS revenue in his newly minted role as our GM of our subscription business. We've also deepened our bench of SaaS expertise on the executive team over the past six months with the additions of our new Chief Marketing Officer, Monica Kumar in December and CFO, Kevin rose last May the alignment of the team is crucial to helping accelerate growth and capture more share. Iqstream brand continues to get elevated in the marketplace through our customer wins and differentiated technology that creates more simplicity and flexibility across complex networking environments. Our promise of one network one cloud remains a competitive differentiator. One Network is underpinned by universal hardware, highlighted by campus fabric, which has unparalleled campus security benefits and allows users to segment networks 10 times faster than any competitor. One Cloud offers customers modern networking tools with built-in AI apps. And we're unique because we're the only provider to offer cloud choice, whether that's public, private hybrid or edge. We're winning deals based on helping customers find new ways to deliver better outcomes, such as increased IT productivity, reduced OpEx or securing their business, the simplicity and flexibility of one network one cloud remains a competitive differentiator, particularly in a time when major competitors have created complexity with disjointed solutions and uncertainty in their long term rationalization of products and solutions. We remain the only pure play networking company with a differentiated and integrated portfolio and a clear roadmap we believe our exposure to the fastest-growing areas of the networking market, share gains and new go-to-market partnerships provide ample growth opportunities to drive double-digit growth in the long term. We are forecasting market share gains with targeted partners, leveraging the strength of our unique solutions for the enterprise.
And with that, I'd like to turn the call over to our CFO, Kevin Rhodes, to walk us through the results and guidance.
Kevin Rhodes
Thanks, Ed. despite lower revenue in the second quarter, we improved our gross margin sequentially and optimized our operating expenses to maintain a healthy operating margin profile. Our EPS was therefore impacted less than our revenue shortfall in the quarter and the second quarter, we took proactive action that enabled us to protect our profitability while continuing to invest in our strategic initiatives. We will continue to focus on aligning our cost structure accordingly as we navigate the second half of our fiscal year.
Let me get into the numbers. Second quarter revenue of $296.4 million fell 7% year over year and was in line with our revised outlook. Product revenue of $186.6 million fell 16.5% year over year, reflecting continued channel digestion and elongated sales cycles that are impacting the networking industry. These trends are consistent across both switching and wireless products. Our product backlog has normalized this quarter earlier than we initially anticipated, and our bookings approximated our product revenue for the first time in four quarters. In fact, our bookings trends were positive and both EMEA and A-Pac were each grew double digits year over year.
From a vertical perspective, while total bookings fell slightly, both quarter over quarter and from the prior year are healthcare, education, manufacturing and transportation slash logistics vertical markets grew from the prior year. We are encouraged by this level of customer activity which informs our view that we will be able to get channel digestion phase behind us as quickly as possible.
S ARR and recurring revenue was a bright spot in our quarter yes. ARR grew 37% year over year to $158 million, driven by the strength of our renewals and activations of previous previously shipped products. Subscription deferred revenue was up 32% year over year to $246 million. As we ship product from backlog, it's generating a tailwind for SaaS growth. Total subscription and support revenue was $110 million, up 16% year over year. This growth was largely driven by the strength of our cloud subscription revenue, up 39% year over year. Recurring revenue continues to be a positive at Extreme. Total recurring revenue of $101 million grew 14% year over year and 6% sequentially. To now 34% of total revenue. Based in our current outlook, we expect recurring revenue to account for approximately 35% of the full fiscal 2024 year revenue. The growth of cloud subscriptions and maintenance drove the total deferred revenue to $549 million, up 23% year over year and 5% sequentially. While gross margin was 62.5%, up 140 basis points from the prior quarter and up 400 basis points compared to the prior year ago quarter this is the third quarter in a row that we've achieved 60 plus percent gross margin, which has proven to be an achievable level for IQstream at normalized scale. We attribute this to improvements in mix due to the higher contribution of subscription and support revenue and an improvement in supply chain and distribution related costs.
Our second quarter operating expenses were $141 million, down $12 million from $153 million in the first quarter and up slightly from $139 million in the year ago quarter, we plan to take additional actions to further optimize our operating expenses to the level of revenue we expect to achieve in the second half of fiscal 2024 in order to preserve our margin structure in the fourth quarter and into fiscal 2025.
Operating margin for the second quarter was 14.8%, down from 17.7% and similar to 14.9% in the prior year quarter. This is the sixth quarter in a row of double digit operating margins, also an achievable level for the Company at normalized scale. All in second quarter non-GAAP earnings per share was $0.24, down from $0.25 in the first quarter and $0.27 in the year-ago quarter. We finished the quarter with $221 million in cash and net cash of $26 million after repurchasing another $25 million of our shares. We've repurchased $153 million worth of our shares over the past five quarters. The $28.6 million of free cash flow we generated in the quarter was impacted by lower revenue and the use of working capital for purchases of raw materials and inventory. Based in our prior year purchase commitments. We expect a recovery in cash flow as revenue recovers and component purchases become more balanced with normalized sell-through rates.
Now turning to guidance. This quarter, we expect sell-through to be significantly higher than sell-in, which we believe will have a meaningful impact on our operating results. To quantify this impact, we expect a 40 to $50 million reduction in channel inventory in the third quarter, which will allow us to cover to a more normalized level of revenue in the fourth quarter. As a result, we plan to take further cost actions to drive the recovery in earnings per share and cash flow heading into the fourth quarter, we are expecting improved sequential revenue growth based on our funnel and the seasonality of our business led by our education vertical. We believe our proactive approach to managing through this industry challenge will enable us to deliver improved growth and profitability in fiscal year 2025 for the third quarter, we expect asphalt revenue to be in a range of 200 to $210 million, gross margin to be in a range of 59.5% to 61.5% operating loss to be at a range of 12.4% to 8.8% and loss per basic share in the range of $0.22 to $0.17 per basic share count is expected to be around 129 million shares.
Looking further ahead into our fourth quarter, we expect revenue to be in a range of two 65 to $275 million, gross margins to be flat to slightly up from the third quarter. Non-gaap operating margin to be in a range of 10% to 13%, GAAP operating margin to be 1% to 4% and fully diluted share count of 131 to 132 million shares.
With that, I'll now turn the call over to the operator to begin the question-and-answer session.
Question and Answer Session
Operator
And ladies and gentlemen, to ask a question you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, you may press star one one. Again, please stand by while we compile the Q&A roster.
Sir? Yes, first and coming from the lineup, Eric Martinuzzi from Lake Street Capital Markets. Your line is open.
Eric Martinuzzi
Yes, I wanted to address the leadership change here and the how we're going to be approaching the channel differently than we were before.
If you could talk a little bit about what Norman Rice is going to be doing, I guess we've sort of lost touch with the channel demand. Those are my words, not yours, but what are we doing to help improve that channel monitoring? What's what processes are normally normal putting in place?
Ed Meyercord
Yes. Thanks.
Thanks, Eric. One of them, one of the first things that damn fit that Norman has done and with our with our leadership teams is to stratify our customer base and to split out what is more a run rate business in terms of business, it's less than 50,000 in order. And what that business looks like, which is going to be more channel driven and can be impacted more through distributors and marketing activities and to provide more clarity to the project-based business and stratifying that project-based business. And I'd say that's that's that's a big change that that norm is bringing to the equation.
The other thing that I'll mention is the norm and Kevin were the architect behind your private subscription offer, which is it is a channel lead initiative that we believe will be disruptive. There's a lot of demand with some of the larger service providers that we have and we're working with. That's building up. And I think you'll start to see and we'll be in a position to announce meaningful deals in the second half of this year. And I also mentioned earlier in my comments about the managed services provider partners that we have who are signing up and there's the portfolio benefits and our technology benefits along with the unique capability that people are very interested in, which is our consumption billing model, which provides for a lot of efficiency for that, that go-to-market motion.
So and it's the stratification of the opportunities. And I'd say a more highly targeted approach to the channel to the core business, along with these targeted new commercial models that we're going go into market with. And Norman is very well used the best qualified person to lead us on that front.
Eric Martinuzzi
Okay. And then looking at the guidance here, I mean, just a really dramatic reset. I'm wondering, was there a prior year outlook because we had though a guidance reset coming out of Q1 and now we've had a even more dramatic reset coming out of Q2. What's the the confidence level here?
We've got one month under our belts for Q. three. Are we seeing any evidence to say things are getting better as far as the sequential step up in Q4?
Ed Meyercord
Yes. Eric, I mean, we commented on yes, on the funnel and opportunities, specifically commenting on the progress that we've seen in Amea in Asia Pacific. And Kevin also touched on the fact that we're heading into E-Rate season, and this looks to be a pretty strong E-Rate season for us. The on the declines came as we were looking into Q2, our outlook for Q2 and our plans to take down channel inventory. The reality is we couldn't take inventory down nearly as much as that we had intended. And I would say with the elongated sales cycles and with bookings pushing out the way they did it only it only deepened our position in the channel and we had to make a decision as to whether or not we want to manage this out overtime or take it all in one fell swoop and our view and our perspective is to get it cleaned up and get more normalized as we head into Q4 and turn the corner on 25. So we are around and that's how we've made the decisions that we're making on demand is obviously going to be masked by inventory flowing out of that channel, and that's a 40 to fully 40 to $50 million number that you heard Kevin talk about and that as we go into Q4, we do have seasonality and we are expecting more need a normal seasonality as we go into that quarter. And we have the E-Rate business and we have a significantly larger funnel, and that's what gives us confidence. So where we are, we're very focused on the cleanup here this quarter and then on delivering and exceeding the in our outlook for the June quarter.
Eric Martinuzzi
Thanks for taking my questions.
Ed Meyercord
Thanks, lot.
Operator
Thank you. And our next question coming from the line of Timothy Horan with Oppenheimer. Your line is open cut OpEx goes on.
Timothy Horan
Could you just talk about maybe the end user demand or customers may be waiting for WiFi seven or CBRS or further upgrades to cloud? And just any color what's going on because the step down next quarter's guidance versus what you were thinking six months ago was incredibly dramatic with the channel numbers that you just gave, it should only tell part of the story.
Ed Meyercord
Yes, Jim, I think that's you're seeing a much more conservative outlook as it relates to demand. And yes, in some cases in the WiFi market. There will be some people that are holding off for WiFi seven. And we've talked about elongated sales cycles, which has been very real in the US, where we've had verbal commitments for pretty exciting wins for extreme, but the deals themselves have been pushed out. And when we look at deals in our funnel, they get to the commit level and we close on those deals, it's more of a function of time. So yes, we're looking at this is timing. If you look at and this is why we're providing guidance for Q4 where we are confident in the guide and how we're going to come out of this in Q4. But we are setting we are setting that base level at a more conservative level than we had in the past. And yes, I'd say your, Tim, to your point, I think we're feeling a little bit burned in terms of what we were expecting to close in the funnel. And we've gone back and taken a fresh view of that and done our views to put it behind us and reset here with a clean path, a clean path going forward.
As we look into fiscal 25, there will be some tough comps if we look at the Q1 and Q2. But as we get into calendar 25, we see ourselves on a really nice and a very strong footing for driving double-digit growth and resuming where we left off.
Timothy Horan
And so why WiFi seven. Can you maybe just talk about how much of an improvement it is for the customers or your benefits? And maybe how does the pricing of the product look like on your ability to supply it.
And then just lastly on WiFi seven and if you don't what the competitive environment looks like and you think this is one of the things kind of driving the elongated sales cycles or customers waiting for this?
Ed Meyercord
Yes. I mean that I think it's fair to say that there are going to be some customers in the marketplace that are waiting on this on the you know, the benefit that you have in WiFi seven, if you have different frequency bands and you have in our case higher bandwidth, which is important. And then we're also bringing on your dual band in terms of speeds. And so there's a lot more flexibility in the solution. So yes, every time you have these upgrades. There's there's there's higher higher quality in terms of connectivity in this case as more bandwidth on there's more flexibility in terms of end-user devices that we pick up on different frequencies on and then we have the and dual bandwidth capabilities in terms of how we connect to the network.
Yes, this the WiFi seven for us is cloud-managed. In addition to our 4,000 series switch, which is purely cloud-managed in this, we're bringing some unique capabilities that provide a lot of advantages in terms of how to deploy and run networks relative to the traditional CLI model where provisioning and network deployments can be done in a much more efficient fashion in a more automated way. So yes, there are a lot of benefits and what's coming out and our most recent releases. And yes, in terms of in terms of opportunities, it could have an impact.
And when does it start shipping at scale, whether we are we are GA at this point. So I think you would expect to see shipping from WiFi seven begin and Q. three and really ramp up and begin to ramp in Q4.
Operator
Thank you.
And our next question coming from the line of David Buck with UBS. Your line is open.
Kevin Rhodes
Great.
David Vogt
Thanks, guys, for taking my questions. And maybe to start on the competitive landscape and that dynamic. I think you guys spent a lot of time talking about and taking sort of the inventory destocking, you know, pain short term, but you also talked about normal seasonality in Q4 and talking about gaining share over the long term. Can you maybe just kind of talk about what you're seeing competitively in the market today that gives you confidence that we can get back to share gains over the intermediate and longer term.
Ed Meyercord
And then I have a follow-up question as well since that.
Yes, the effect so I'll yes, I'll comment on that. What gives us confidence is what we see happening in the market every day. And we've talked about the largest competitor in this space that has a very different cloud solution, and we continue to see the industry moving to cloud and we have a leadership position in cloud. So the largest player in the marketplace has got a very different cloud solution from the traditional enterprise solution. In addition to that, they continue to invest in other markets. And so the level of complexity that we're feeling in the marketplace surrounding the largest competitor is very real and opens up a lot of opportunities. We've talked about some of the larger deals that we're getting into. We continue to move up market and you'll see us continuing to do this with some of the announcements that will come out of IQstream where come in these highly competitive and highly contested and processes were coming out on top. And so you're seeing the likes of Cisco and HP and Juniper getting pushed back and IQstream winning. And that's part of our up-leveling our brand. So that's that's one of the ways that we have confidence relative to the largest player. We are everyone is very top of mind the HP. acquisition of Juniper. What will that mean in our case, it means that in one of our competitors will be going away where we see a lot of opportunities certainly over the next couple of years as they're looking to rationalize their product portfolios. So this is going to create opportunities. In fact, it already has where we're already getting calls from customers, direct customers and end users in the field as well as partners who are concerned and very unsure about what does that product roadmap look like and what is it going to look like? And this gives us these just create these, they create more opportunities for us.
David Vogt
No. Great. That's helpful.
Ed Meyercord
And maybe just a follow-up.
David Vogt
You talked about a strong E-Rate season coming up and getting back to hopefully some degree of normal seasonality by the June quarter and recognizing that obviously the first half of fiscal 25 is difficult comps on a year-over-year basis. Are you planning for what I would consider to be more normal seasonal behavior on a quarter-over-quarter basis as we get through June going forward? Or is there still some digestion from weather order growth intake or underlying demand slash sort of channel digestion that we should expect as we go through the second half of this calendar year into 20.
But and then just maybe one final one for Kevin, if I could slip it in there. You mentioned obviously double digit margins at normalized scale. I think the phrase was would just love to get some more color on I was thinking about it because I know at the Analyst Day, obviously, you guys had talked about margins above, let's call it, fiscal 22 levels back into mid 10s. But just wanted to get more color on what scale do you need to get to to get back to margins that are more robust than, let's say, fiscal 2010?
Ed Meyercord
So and I'll cover the first part of the question and then Kevin, I'll let you jump in and cover the second part. We're looking. I think it it, yes, more traditional seasonality as you look at the shift going from two one Q4 into Q1 to Q2, et cetera. I think in the core business that the outlier here is going to be some of the new commercial motions that we have, that that are not likely to be the same seasonal patterns. So some of the some of the larger deals that traditionally we would not have access to in terms of our private subscription offer. For example, we are not necessarily going to fall into that traditional seasonal low of the core business. And I'd say the same thing is true with our MSP. business. As that ramps, that's just going to be more of a steady incline than it will be because it a traditional seasonal business.
Kevin, do you want to comment on the second second part of the question?
Kevin Rhodes
Sure.
Ed Meyercord
Sure.
Kevin Rhodes
Absolutely. Happy to on our current, we the reason why we gave the Q4 outlook is to actually show what we believe will be a more normalized. We do believe we will grow off of Q4. So we're not thinking that that is like the new number forever because we have these opportunities with NSP. and SPO. that will continue to mature and provide further growth in the future. But with Q4 being 10% to 13%. We believe that's a good jumping off point, but we will maintain operating margins in the double digits throughout this fourth quarter and throughout next year is our plan in terms of like how much we can scale from where we were in 23 or 24 in the future, we really have to go and spend a little bit more time, looking at where our 25 26 contributions are going to be to get into that, that the higher realms of mid mid 10s to high 10s, even 20% scale beyond that, but we do think it's possible. I mean, we are already showing the discipline that if we need to we could take cost out of the business to drive and keep our margins, you know, at that double-digit level. And what we need to do is we're more focused on that is continuing to scale and grow the business and generate more profitability over time. And that's exactly what I had no intention intending to do is to continue to scale the operating margins over time.
David Vogt
Great. Thanks, guys.
Operator
Thank you. And as a reminder to ask a question, please press star one one. Our next question coming from the line of Christian Schwab with Craig-Hallum Capital. Your line is open.
Christian Schwab
Hey, good morning, guys. So it is another it has become evident, have, you know, over earning during supply chain issues, et cetera, et cetera, and competitors not having products. And when we look at your business and lean baseline modest growth before we entered this period. And I kind of come up with a number 1 billion, one plus or minus. Is that kind of what you believe the business, you know, we're a little bit below that run rate barge a little bit above that are kind of in that light in June. Is that kind of our starting point on from from your top line growth initiatives. Is that fair? Is that the way you think about it?
Ed Meyercord
I think it's fair. We're going to build and out of this and year, what we've said is and Christian will use that language kind of more normalized to comment on the June quarter. And when you kind of run the math on some some growth on that kind of baseline business you get to the one.one two?
I think that's a fair assessment, Kevin. I don't know if you want to add to that or comment?
Christian Schwab
No, I think you're right. I mean, with Q4 being at that level and then a jumping off point there with it being the new normal with continue we do believe that we will continue to grow the business. We'll have a better growth story in the second half of our fiscal year 25 than the first half, but in general.
Kevin Rhodes
Yes, in terms of range, $1 billion as the new normal is about Interestingly though, is there is some Norman's work doing anything about moving to selling product as a service, you know, across the board it in putting the mechanism in place to be more aggressive in that, or is that something you're going to watch some of the other people in the industry do to see if there's a tremendous customer interest, I think you're going to see us be a lot more aggressive.
Ed Meyercord
And we've and I mentioned that the triumvirate of Norman stepping in and taking the lead as Chief Commercial Officer on new deal is our Chief Technology and Chief Product Officer, but he's also running a cross-functional team on SaaS and subscription. And one of the things that you're seeing is really nice growth on the subscription line and really healthy margins on that subscription business. And so we yes, as we think about growth, we have plans to continue that growth on the subscription line. Also, we have the benefit of both of gross margins on that. You'll Finally, we made a key hire Monica Kumar, who's come and join us. And I think she's going to be the glue between our product orgs that are selling orgs and I think will we have an opportunity to be much more targeted and I would say much more aggressive in direct outreach to the market more broadly as well as I'm more targeted with the channel and we have some really interesting growth opportunities in the channel. So I think this represents a unique opportunity for extreme to really step up in the marketplace.
Kevin Rhodes
And that's how we see it a greater than my last question with the recent consolidation in the space from you did a big consolidation years ago and extremely Confused your customer base, but which products you were going to support and which products you were not going to support. So I think with that as a backdrop, should set you up, though to be well positioned to take advantage of what could be potential confusion in the marketplace? Do you think that that will help be a competitive advantage for you to gain share?
Ed Meyercord
We do have it looks like from the announcement, it looks like the HP was very interested in the AI platform that that Juniper brings to the equation and that Juniper leadership will be heading the networking side what does that mean to the massive installed base of Aruba and Aruba technology?
It's it raises a lot of questions. And for customers, it raises an awful lot of questions and keep in mind, Juniper is kind of an enterprise really from a service provider position. And so in terms of the breadth of their portfolio, they are still miss was very much kind of driving the efforts. And in terms of the full and enterprise solution, it's not as robust. And so how that incorporates and how that gets built into the Aruba enterprise solution set. There are a lot of questions out there, and I think that's going to create opportunities for us. And we're very focused on a very clean and simple and flexible solution in terms of our universal hardware in terms of interfacing with one cloud. This presents a very fresh alternative and a very clean alternative for customers that are out there. And the other thing that you're aware of, Christian, from our prior M&A activities is that date they baked a lot of synergy into their into the formula. And when you look at $430 million, $450 million of expense coming out of the business. You're talking about thousands of people coming out of that business and where they come from and how that plays out. Again, we'll create disruption. And as I mentioned earlier, we've gotten calls from we are already getting calls from employees and customers and partners. So we think this this will present opportunities, potentially hiring opportunities and new growth opportunities for us.
Christian Schwab
And great. No other questions. Thank you thinking.
Operator
Thank you. And our next question coming from the line of Dave Kang with B. Riley. Everyone is open.
Dave Kang
Thank you. Good morning. My first question is regarding bookings. You reported that Asia and Europe were up double digits year over year. Just wondering if you can provide any color on North America bookings. I mean, did they come to the color?
Kevin Rhodes
As I'd say, that's the area where we've been challenges in terms of the bookings on, we were close to a book-to-bill ratio of one in the quarter. So that was a positive news, but North America was down year over year.
Dave Kang
Got it. And then so it sounds like a fiscal third quarter, most of the inventory excess inventory, excess inventories, you will be flushed out. So can we expect fiscal fourth quarter to be sort of like a clean channel inventory?
Kevin Rhodes
Yes, that's exactly our intent is to get it clean and to have, you know, get normalized in the fourth quarter and beyond.
Ed Meyercord
So it sounds like I mean, you're right, I would just add.
Yes, we look at obviously, normalized backlog has happened and quickly and more quickly than than originally anticipated. And as we look at entering Q4, we look at normalized backlog and normalized channel inventory.
So that's somewhat of a clean slate as we head into Q4 and turn the corner into fiscal 25 and based on your fiscal fourth quarter guide revenue guide, you're implying that orders will be up significantly sequentially from third to fourth quarter, correct?
Kevin Rhodes
Yes, we got the E-Rate season there we mentioned that earlier. So we will if we are expecting sequential growth, a our two strongest quarters in a year or the fourth quarter and the start of the second and fourth quarter of our fiscal year. So what as we think about the June quarter, we've got the E-Rate season there. We've got a stronger pipeline than we have in the third quarter here, and we've got strong E-Rate season coming at us. So we are expecting sequential growth.
Dave Kang
And my last question is on Ed, you mentioned that fiscal 25 you're expecting meaningful growth. Just wondering if you can kind of provide additional color, should we expecting should we expect like a double digit? Would that be meaningful that?
Ed Meyercord
That's correct. And that's how we're thinking about it, David. So we looked at that there was going to be a tough comp in the first quarter. And given that we landed at three 53 last year for this group in Q1 of this year and then year, I think you get to the second half as we turn the corner into calendar 25. Obviously, we'll have a very a much easier comp in Q3, but we expect that our marketing initiatives are our go-to-market initiatives in terms of the core business and then the realization of these new commercial models that that are growing that they haven't really had an impact on our financials yet. But by the time we get to that calendar at 25 timeframe, you'll start to see a much more meaningful impact of those initiatives coming into play and adding to growth over just what we would consider to be kind of core market growth.
Dave Kang
Got it. Thank you.
Operator
Thank you. And our next question coming from the line of Alex Henderson with Needham. Your line is open.
Alex Henderson
Your commentary about $1.1 billion being the run rate, the revenue number and the guide fourth quarter of the fiscal year at two 62, 70 more normalized, it's troubling fourth quarter of 2019, you did $252 million. And for the full year 2019, you did it roughly?
Yes, 19, that would put a growth rate, right? It's around two. Frank would not say that that's a reasonable growth rate.
So the question I have for you, what is the real normalized number? If you were to adjust numbers baseline, you say $1.1 billion is normalized, but I don't think believe you are a 2.5% growth company. So can you please adjust language a little bit for us in terms of understanding how much the fall QUARTER opposed to more normalized? What would be the run rate of revenue?
Ed Meyercord
Yes. So let me, Kevin, just you hit hit the you have just hit a high level and then I'll let you come in and fill in. But Alex, we're obviously it's pretty massive reset here in our Q three and with a lot of cleanup involved, we have and we have new teams and we have a new approach that are coming in and looking to sort of build off of the base and resetting the foundation on whether or not it would be normal seasonality going into Q1 or is there still conservatism in that that Q4 number where you could still see some growth sequential growth coming out of that we are we wanted to provide the outlook for for the in our fiscal Q4 to provide again, what we're calling more normalized will we be will that be up a fully more normalized bookings number from there. I think we need some work on that and we'll definitely be coming back to you with a more refined outlook on how we see the evolution of booking, especially considering these other commercial models, which quite frankly, we have not included in our outlook.
Kevin Rhodes
I think that's the key is I think that the MST. model is very nascent, very early. The SVOD model we have as well as private subscription offers. Also very early stages on this is based on the run rate of the existing business and products. So we've got ZTNA. coming on board. We've got Y. five, seven seven coming on board. We've got new products innovations coming out that will continue to give us a tailwind in the future. Right now, we're just not prepared to go and guide for 2025 or beyond, but wanted to give at least a normalized Q4 at this point.
Ed Meyercord
And Alex, the other the other comment to make is that we have seen, yes, earlier, we saw Asia Pacific recovering more quickly, and then we've seen India come with year-over-year growth that Kevin mentioned, and we just haven't seen it yet in the Americas. And so the timing of that Americas recovery to the normal buying cycle and how all of that kicks in from a timing perspective. And we have a lot of large deals that would that are that are in the hopper for us really exciting from a brand perspective in terms of where we are in these competitive processes.
Kevin Rhodes
But they're very lumpy.
Ed Meyercord
And it's I think it's a little challenging for the team right now to stick their necks out and call some of these larger deals in that makes sense. He's the guy rate would be $1.1 billion, which is obviously still incorporating a significant amount of backlog more now it's normal and it's certainly not in the fourth quarter. You're assuming for the fourth quarter, what would be fully normalized for?
Alex Henderson
Yes. Can you give us some sense of what more in terms of the scaling?
Ed Meyercord
Yes. I mean, I'm not sure we're there. I'm not sure we're there yet. I mean, if we look at a two, 75 number if we look at it to 75 number in Q4 and obviously, now there's the math to get to 1.1 when you just roll that over. So there's not I guess you would say there's not a lot of growth built into that for a normalized fiscal 25?
Alex Henderson
Alex, it's 53. Fourth quarter 75 is close to normal? Well, I mean, Alex, two numbers I want No, 30, $40 million in the June quarter of inventory absorption.
Kevin Rhodes
Yes. Alex ending and then anything that you're missing? I think is the North America is still recovering, it was down year over year.
Alex Henderson
Am I missing anything when you lose when you give us the guidance for the fourth quarter in terms of the absorption in the recovery in the environment?
Kevin Rhodes
We're assuming we're assuming.
No, no incremental amounts. As you say, not in the fourth quarter, we assume absorption will occur in the third quarter with no more absorption needed in the fourth quarter. What we need to we need to see is we need to see the market. The entire market is down right now, this is not just an extreme issue. This is exogenous issue that's there across all IT and all that working. And so where we see what we hope is that the market starts to come back and that we will see the North American market come back and appreciate your points. But like we've got to get the whole market to come back and spend, you know, across the board.
Operator
Okay. Thank you. And I will now turn the call back over to Mr. Ed Meyercord for any closing remarks.
Ed Meyercord
Okay. Thank you, Pat. Thank you, everybody, for participate participating on the call. And obviously we'll have callbacks with many of you and we appreciate all the all the good questions asked when I take time to thank our employees and customers and partners who are participating here and for all of the work as we're transitioning through this cycle and putting ourselves on a more normalized footing as we've been talking about, yes, we are we are absolutely looking forward to putting us this chapter behind us, and we're committed to innovating in the industry and continuing to deliver new solutions. And we're committed to these strategic initiatives that that we will that will drive long-term growth for us at Extreme. So thanks, everybody, and have a good day.
Operator
Ladies and gentlemen, let us now conference for today. Thank you for your participation. You may now disconnect.
