Erik Suppiger

Erik Suppiger asked for the contribution from the federal business (total and on-premises) and if there was a difference in the decline of renewal rates between federal and non-federal on-premises categories.

Answer

CFO Guy Melamed stated that the federal business typically accounts for about 5% of total ARR. He confirmed a headwind of several million dollars from federal renewals in Q3. The decline in renewal rates was observed in both the federal and non-federal on-premises segments, indicating it was not solely a federal issue.

Erik Suppiger asked for the contribution from the federal business and the on-premises federal business, and whether there was a difference in the decline of renewal rates between federal and non-federal on-premises categories.

Answer

Guy Melamed (CFO & COO) stated that the federal business typically accounts for about 5% of total ARR. Q3 experienced a headwind of several million dollars from federal renewals. He confirmed that the renewal rate decline was observed in both the federal and non-federal on-premises segments, which led to the reduction in Q4 guidance.

Erik Suppiger of JMP Securities asked about the company's plans regarding potential tariffs and whether they would raise prices. He also inquired about inventory, specifically the percentage of U.S. shipments from the new warehouse and if finished goods inventory would continue to grow.

Answer

Robert Pera, Founder, CEO and Chairman, stated that a decent percentage of U.S. revenue now flows through the domestic inventory center. He emphasized that his primary focus is meeting demand and resolving chronic stock-outs, which will dictate business decisions rather than a specific inventory level on the balance sheet.

Erik L. Suppiger asked for an update on the company's goals for its aggressive share buyback program and how it measures the return on investment for these repurchases.

Answer

Robert J. Pera, Founder, CEO and Chairman, stated the goal is to use capital efficiently, noting that past buybacks have yielded a better return than holding cash. He explained that while acquisitions are considered, the company's unique culture makes organic growth preferable. Therefore, using cash to retire undervalued shares and improve future EPS is an easy decision.

Erik Suppiger asked about the flat revenue outlook for the December quarter, which typically sees a seasonal uptick, and inquired about the progress of migrating distributors to new warehouses and adjusting their inventory levels.

Answer

Robert Pera (Chairman and CEO) stated that quarter-to-quarter variations are not a good reflection of long-term objectives and announced the company would stop giving quarterly guidance next fiscal year. He emphasized that operational and supply chain execution is the company's weakest area and a top priority for improvement, which currently causes a mismatch between quarterly results and true business demand.