Shares of Extreme Networks Inc. plummeted 15% today after the network equipment and software provider released its latest quarterly report.

The company’s sales in the three months through Sept. 30 topped expectations, while its adjusted earnings per share were in line with the consensus estimate. The reason the company’s earnings didn’t surpass analysts’ projections is that its adjusted gross margin dropped by 2.4% year-over-year. That decline may have been the reason behind today’s stock selloff. 

North Carolina-based Extreme Networks sells data center switches, access points for providing Wi-Fi coverage in offices and related hardware. It also offers a suite of network management applications. Those applications have emerged as one of the company’s most important growth drivers.

Extreme generated $310.2 million in revenue during its fiscal first quarter, which represents a 15% increase from 12 months earlier. Analysts were expecting $305.6 million. Much of the sales growth was driven by Extreme’s software-as-a-service business, which saw its annualized recurring revenue rise 24.2% to $216.2 million.

One of the biggest contributors to the company’s SaaS momentum is Extreme Platform ONE, a networking platform it launched in July. The software uses artificial intelligence to identify the root cause of network issues and suggest fixes. The company claims that its AI can save administrators hours of work per incident.

Extreme Platform ONE also eases certain related tasks. According to the company, the software can generate a visualization of the devices that make up a corporate network and the way they interact with one another. Enterprises can use the visualization to familiarize newly hired administrators with their infrastructure. 

“The adoption of Extreme Platform ONE was well ahead of our expectations in the quarter, and the sales pipeline is looking very strong,” Chief Financial Officer Kevin Rhodes told investors during an earnings call today.

The company’s sales numbers were also buoyed by a set of new deals with large customers and strong demand for its Wi-Fi 7 devices. Introduced last year, Wi-Fi 7 is significantly faster than earlier versions of the networking standard. Extreme sells access points that use the technology to provide wireless connectivity in offices and factories. 

The company delivered adjusted earnings of $0.22 per share in the first quarter, in line with the Zacks consensus estimate. It met analyst expectations despite the fact that the cost of some optical components and memory chips rose sharply in recent months. According to Rhodes, Extreme raised some product prices to offset the higher costs. 

The company expects to generate adjusted earnings of 23 to 25 cents per share in the current quarter, which is in line with the consensus estimate. Its revenue guidance of $309 million to $315 million topped expectations. Chief Executive Ed Meyercord told investors that Extreme’s revenue growth plan places an emphasis on expanding the use of products in the federal government and Europe. 

Image: Extreme Networks