What happened

Shares of Extreme Networks (NASDAQ:EXTR) rose 25.8% in July, according to data from S&P Global Market Intelligence. The stock climbed thanks to broader momentum and then saw more pronounced gains after publishing results at the end of the month.

EXTR Chart

Data source: YCharts.

Extreme Networks reported fourth-quarter earnings results on July 31, delivering results that came in ahead of the company's guidance and the average analyst estimates. The network hardware company reported non-GAAP (adjusted) earnings of $0.06 on sales of $252.4 million, topping the average analyst target for adjusted earnings of $0.04 per share on revenue of $244.79 million. 

An Extreme Networks X465 switch stack.

Image source: Extreme Networks.

So what

Extreme Network's fourth-quarter revenue came in 9% lower year over year, and its earnings for the period were 70% lower than in the 2018 quarter. However, the earnings and sales beat combined with solid guidance and moves to accelerate its services business helped the stock post strong double-digit gains last month. The company recorded 23 deals worth at least $1 million in the quarter, up from 17 deals in the third quarter. Free cash flow for the period was $18.9 million, up from  $2.36 million in the prior-year quarter. 

Now what

For the first quarter, Extreme Networks is guiding for sales between $250 million and $260 million and adjusted net income per share between $0.03 and $0.07.

The company is transitioning to a more subscription-based model and is targeting to have roughly 30% of its revenue for 2020 derived from recurring revenue sources, and closed its acquisition of Aerohive (a provider of cloud-managed networking solutions). It anticipates that Aerohive will contribute $15 million in sales in the first quarter and an adjusted net loss of $0.03 per share. 

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