Q4 2020 Extreme Networks Inc Earnings Call
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Ladies and gentlemen, today's conference is scheduled to begin shortly please proceed with them, but thank you for your patience, ladies and gentleman todays conference is scheduled to begin shortly please convened by I think for patients.
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Ladies and gentlemen, thank you for standing by welcome to the extreme that what you for fiscal year 20 financial results Conference call. At this time all participant lines are no listen only mode. After the speakers presentation. There will be a question answer session. SASSA question. During the session wanted to press star one on your telephone please be advised.
Today's conference is being recorded if you require any further assistance. Please press star Zero I would now like to have the conference over to your speaker today, Stan Kovler, Vice President corporate strategy and Investor Relations. Thank you. Please go ahead Sir.
Thank you Judy and welcome to the extreme networks fourth quarter of the school and year end 2020 earnings Conference call I'm stakeholder Vice President of corporate strategy Investor Relations and with me today, our extreme networks, President and CEO, Ed Meyercord and CFO Remy Tomorrow, we just distributed a press release and filed an 8-K D.
Tailing extreme networks fiscal fourth quarter and year end fiscal 2020 financial results.
For your convenience of a copy of the press release, which includes our GAAP to non-GAAP reconciliations and our financial results presentation are both available in the Investor Relations section of our web site at extreme networks Dot com.
I would like to remind you that during today's call. Our discussion may include forward looking statements about extreme networks future business financial and operational results growth expectations and strategies the impact of Cobot 19 pandemic acquired technologies products operations pricing changes to our supply chain the impact of tariffs.
Acquisition and integration of Aerohive networks, and digital transformation initiatives.
We caution you not to put undue reliance on these forward looking statements as they involve risks and uncertainties that can cause actual results to differ materially from those anticipated by these statements as described in our risk factors in our 10-K report for the period ending June Thirtyth 2019 filed with the FCC and in our more recent 8-K and tend to filings.
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.
Now I will turn the call over to extreme networks, President and CEO Ed Meyercord.
Thank you Stan and I. Thank you all for joining us this morning.
First of all I also want to see thank you to our employees customers and partners in the front line of Kobin.
We continue to face heightened risk and keeping our vital networking infrastructure up and running.
It's been truly amazing to see how our customers teams across all our industry verticals basic unprecedented challenges responding to creative and innovative solutions to deliver enterprise applications that users we secure in high quality connections across new distributed networks.
Our Q4 results reflect the resilience of our business and our ability to move quickly to adapt to the new normal.
Networking infrastructure remain vital for our customers demand remains strong.
Now more than ever before our brand promise effortless networking is resonating with customers.
Our universal hardware platforms for the wireless that's where core managed entirely from the cloud with machine learning insights the new AI tools to drive IP automation allow us to make it very easy to deploy a managed distributed networks.
Networks are becoming more and more about data extreme is the only provider in the industry to offer cloud choice and unlimited data and the first to bring end to end fabric management into the cloud.
Our ability to bring enhanced flexibility and effortless is leveling our competitive position in dialogue with customers.
So as extreme implemented in our own solutions internally and the answer is yes, and how do we do it literally overnight. This is the power of extreme cloud I Q. This week extreme simultaneously transformed 18 global office location by deploying new wireless and why.
Third infrastructure managed by our cloud.
Hi, utilizing the capabilities of extreme cloud like you we were able to reconfigure an architect our global environment before hardware, we shipped location.
Our automated device discovery and provisioning eliminated the need for any physical IP resources at each of the location and allow it allowed us to complete these 18 offices in a day. This rollout combined with plant expansions over the next 30 days will support extremes entire global workforce 3000 people.
On a personal note I also implemented extreme cloud a few months ago and I admit I bet technical I was able to deployed for access points throughout my house with existing Ethernet cables, the beauty of power over Ethernet along with the switch the whole exercise took less than an hour and since then.
I've been demo Ing My cloud environment network performance with ml insights regularly with customers partners employees, it's that easy effortless.
Your five of many milestones we achieved during the quarter.
While we had strong adoption of our cloud, 42% sequential growth in new subscription bookings in 8.5% sequential growth and our managed devices to 1.1 million.
Two we strengthened our financial position and flexibility by further reducing our revenue break even point delivering profitable profitability and cash generation during the quarter.
Throughout the entire koby crisis extreme has generated positive free cash flow.
Three we revamped our go to market strategy and higher Jobin allowed as our new Chief revenue Officer, Joe is a proven sales leader five times CRL. The next month track record of leading of winning and our go to market model.
As an added benefit Joe and our new Chief Marketing Officer, West ROE work together Mitel and both of that successful experiences pivoting businesses from on Prem as a service model.
We've also identified are busy building new routes to market and improved processes that will ramp our lead gen fill funnel and drive growth.
Before we restructured our R&D organization under our talented chief product officer, the build new car it and recently added CTO see his title. So he can focus on next Gen technology innovation.
Bolstering our thought leadership in the industry and strengthening our strategic customer relationships.
And five we operationalize extreme pilot I couldn't run on all three major public cloud platforms and we're the only company that offers public private or on Prem deployments not only that we announced unlimited data with a lifetime of our customers subscription.
In some respects coded leveled the playing field in marketing.
We've experienced unprecedented attendance at participation in customer events during the fourth quarter, we generated over 1.7 billion impressions from our PR efforts our web at our attendance was up five times can we generate three times as many marketing qualified leads during the quarter than we did during the first three quarters.
And our upcoming connect user conference.
I think five times of participation rate versus last year.
The increase in our marketing productivity during Cove, it is only giving us confidence in our ability to grow to ensure.
Our sales teams are stepping up in a big way, we restructured our global field organization to enhance coverage of strategic in territory account.
And as for volume sales motion.
We also launched a new sales playbook platform. It was built by sales for sales.
And we will empower every seller and our organization with very specific tools and training for their rules.
Our field fully embraced in already signed up for our strength and commission plan and our crowd incentives in the first month of our fiscal year.
And we just concluded our sales kick off that received high marks.
And a better than expected response, given the virtual environment.
All in all our sellers are often great start to fiscal two anyone.
On August 10th we will launch extreme and power. This is our channel self service environment with volume based promotions to enable zero touch discount authorizations to our distributors apartments.
Extremely power is already in production to select group of distributors very positive and we're committed to bring effortless to the channel as well.
So.
Wrapping up Q4, the key few key customer wins during the quarter included Madrid Digital Tele Health network, we delivered secure access to the department of virtual health and social services for one of the half million citizens in Madrid, the capital is thing.
Nearly 17000 healthcare and administrators.
Cross 30 location will deliver tele health services and collect data from remote medical devices from extreme cloud I Q.
So without three of Samsung display conducted deficient migration network using a range of extreme edge, which.
This is a wallet share with one of the world's largest manufacturer.
And we had significant state and local government and education win.
Including the multimillion dollar network deployment Jefferson County, Public school system in Kentucky.
20 like largest system in the U.S.
Enabling digital learning tools and applications for 169 school.
And outside the U.S., we won several multimillion dollar deals with education systems in Germany, and Japan, driven by extreme Pike.
As we pivoted to fiscal year 21, we got off to a solid start the strong July linearity and funnel visibility to gives us confidence in our ability to deliver 4% sequential growth in what is typically a seasonally down quarter.
We expect the gradual recovery from Covidien continue throughout fiscal 2001, and believe extreme will emerge from all of this as a stronger and more competitive company.
With that I'll turn the call over to our CFO Remy tola.
Thank you said.
Total revenue of $215.5 million grew 3% quarter over quarter, mainly driven by product revenue up 4% well services revenue edged up 1%.
Our recurring revenue contribution to 34% of revenue similar to Q3.
Non-GAAP earnings per share was three cents compared to six cents in a year ago quarter and a loss of 14 cents in Q3.
The strong quarter over quarter recovering our bottom line was the result of higher revenue any material reduction in our cost and expenses.
The reduction in operating expense base by $12 million sequentially and $20 million from the year ago quarter means that our breakeven point is now closer to 215 million in quarterly revenues instead of the 220 mentioned on our last earnings call.
It also enabled us to generate free cash flow during the quarter of $6.2 million.
With a $191 million of cash and equivalents on hand at the end of Q pool, we have maintained our financial flexibility and liquidity position during a challenging macro environment, our partners and customers benefited during the quarter from our recent introduce leap, but lending enablement and assistant program.
Through September Thirtyth 2020, the program enabled us to leverage a third party financial solutions company to provide additional flexibility to customers during dependent.
Total product revenue was $141.5 million and our total product book to Bill ratio was approximately 1.1.
Revenue associated with newly introduced products grew 58% quarter over quarter, we're now 90% complete with our product refresh as if the June quarter inline with our previously announced goals.
We also began taking customer orders for universal hardware platforms that will be shipping in early calendar Q4.
On a relative basis.
Hedge edge switching products outperform our wireless products during the quarter.
Total services revenue of $74 million grew 18% year over year, and 1% quarter over quarter, largely driven by maintenance and cloud subscriptions.
Our total services book to Bill ratio was 1.3 as customers continue to support their existing network requirements.
New cloud subscription bookings grew by 31% year over year and 42% sequentially.
We are witnessing an accelerated adoption of cloud as a direct consequence of cobot.
Based on our Q4 bookings our cloud managed subscription business just reached nearly $60 million in annual run rate.
During the quarter, the Americas contributed 55% to total revenue in the 35% and eight PGC close out the remaining 10%.
In the U.S., we saw improving momentum in the government and education vertical verticals.
Somewhat of a recovery with manufacturing customers and a solid telco service provider market.
Non-GAAP gross margin was 59.4% up from 59.2% in the year grew quarter and compared to 56.7% in Q3.
The sequential increase was attributable to high volume the non recurrence of the onetime inventory write down booked in Q3 as well as a reduction in the variable and fixed cost embedded in our cost of goods sold line.
Q4, non-GAAP operating expenses of $116.8 million worth the Midpoints about 115 to 120 million outlook down from 129.3 million quarter over quarter, and 136.8 million in the year ago quarter.
This resulted in an operating margin of 5.2% versus an operating margin loss of 5.1% in Q3 and up from an operating margin of 4.9% in the year ago quarter.
Free cash flow was $6.2 million up from 2 million in Q3 and down from 18.9 million in the year ago quarter.
Our cash conversion cycle increased to 70 days from 59 days in Q3 and from 61 days in a year ago quarter. The sequential increase in our cash conversion cycle was driven mostly by TNB, increasing dsos somewhat within the normally low level of account receivable coming out Q3 combine.
And with the five the reduction in depots.
We made sequential progress in reducing our inventory levels measured both in absolute dollars down to 62.6 million as of the end of Q4 and 66.2 million as at the end of Q3 as well as days of inventory from 83 to 80 days in fact, we believe.
There is significant room for further improvements in future quarters.
Now turning to guidance.
We expect Q1 revenue to be in the range of $220 million to $230 million, which represent 4% sequential growth at the midpoint.
Q1, GAAP gross margin is anticipated to be in the range of 55.82, 56.8% and non-GAAP gross margin in the range of 59% to 60%.
Q1, GAAP operating expenses are expected to be in the range of $131.1 million to $135.1 million and non-GAAP opex in the range of $120.6 million to $124.6 million. The sequential increase in Opex is primarily related to the reversal is some.
Short term expense measures implemented in Q4.
Higher commissions, reflecting current revenue expectation and to a lesser extent rising spend in travel and entertainment in comparison to the minimal level incurred in Q4.
Q1, GAAP earnings are expected to be in the range of a net loss of 16.9 million to $13.1 million or a loss of 14 to 11 cents per share.
Non-GAAP net income is expected to be in the range of 2.7 million to 4.9 million one to four cents per diluted share.
In Q1, we expect average shares outstanding to be approximately 121.7 million on a GAAP basis.
And 122.2 million on a non-GAAP basis with that I will now turn it over to the operator to begin the question and answer session.
As a reminder, tap the question you will need to press star one on your telephone. So what are your question first the balancing.
Yes. Thank you please limit yourself to one question and one follow up question.
Our first question comes from the line of Alex Henderson from need your line is now open.
Thanks.
Just a quick clarification.
Before I ask your question the comment about.
The universal.
Products.
Being available and taking orders for that was see why for Q.
For Q in terms of when its available correct.
Okay.
At that at why it kind of fiscal year. So within the in the December quarter, we're already taking orders as a 50 520.
Our universal Apds.
Our.
In a market in August and then our switch port switches are coming out.
And the November timeframe, so it's that.
Calendar fiscal 20, and it's it's Q2.
It's exactly the calendar Q4, as our fiscal Q2, great. Thanks for that clarification and by the way I just wanted to say thank you very much for the slide deck with the key performance and vertical trends, that's very nice granularity in.
Okay good content.
I was hoping you could talk a little bit about the difference between what you're seeing.
The campus market.
Your expectations are for.
Relative to.
The environment.
Versus say data center.
Type of environment.
And.
Also relative to cloud edge.
What's going on core campus.
Thanks.
Yes.
Let me take a shot that Alex it.
What we're seeing it you could hear in our prepared remarks is distributed so with people working from home.
Yeah.
You have a different kind of campus network theres more emphasis on remote remote workers.
And various different I mentioned that Madrid.
Yes, Tele health, where.
You've got.
Distributed patients for example, you have to take care of so.
Let's put it putting more emphasis on external connections.
Securing applications out to the edge distributed networks, and it's still being able to provide security and the quality of service out on the edge.
So what we're seeing is that front from a campus perspective.
Campus networks are alive, and well with or just more distributed.
In our case you when we look at our business and we look at our funnel.
Our Paul it's good it looks strong.
But.
Itself as you would predict we're seeing.
We're seeing opportunities that are more distributed nature, a lot of a lot of our customers in this lets face state local education, youre, taking advantage of empty campuses to upgrade and refresh networks.
In the physical environment, where they don't have people there physically.
That would that would cause any kind of disruption.
They're they're working where so.
Yep.
From our standpoint.
We see.
We continue to see a healthy funnel of opportunities and campus.
If I could follow up my follow up question on this would be.
When you're looking at the cost cutting side.
Yeah.
Obviously, you've got some expenditures that were very tight.
Controlled in the most recent quarter you talked about.
Seeing TV coming up in some of those expenditures coming back, but I get it spending is coming up but are you also.
Complete on your cost cutting program or is there still more benefits that.
Accrue over the next quarter or too.
As we go forward back for the calendar year.
Thanks, maybe I'll just I'll jump in and then you can add but it is Remy mentioned.
Some of the actions that we took in our fourth quarter, we don't have a full quarter benefit so you'll see us a full quarter benefit.
As we roll into fiscal 2001.
But right now the table at that as far as our cost structure.
We.
As far as our plans are concerned we are we are plant and more offense reductions we're planning sequential growth.
Maybe you are adding to that.
No I think it's some spare the majority of both long term actions are done.
And if anything spend is going to go up as a result of higher commissions as the bookings.
Recover and and higher TNT, although I would say Alex that we can keep TNT and most discretionary expenses under very tight control as you can imagine.
Thank you very much thanks, Alex.
Thank you. Our next question comes from the line of Samik Chatterjee from JP Morgan. Your line is now open.
Hi, Good morning, Thanks for taking my question if I can just on the keyboard the book.
Are you seeing strength Goldman.
Okay. Thank you mentioned, how should I think about be sustainable reveals that.
The new seeing given that you just mentioned that they had some claims so but again for the indications like the using the opportunity for.
Steve it's not being on the compose et cetera, what gives you the confidence about this demand live in sustaining.
Put a bit longer than to speak.
Thank you.
Sure.
I mean, we looked at your seat.
And local government and education spending we have a few different buckets is the government entities themselves and then there's K through 12 schools and then there is higher education. So what gives us confidence is all the opportunities that we and our panel and our sales cycle is.
Can be anywhere from we see in quarter deals do we can see deals that take in here plus two for world.
Net that that's one of the things that we have visibility too in terms of the field and the opportunities we see in the fall. The other thing that happened this year as our E rate filings and and you were up 30% and then what happened this year, which is different from years past.
Is that the government the new Saks started sending a funding letters earlier than usual. So we've seen yes, our wins in E rate being funded earlier and so we have the big pile of opportunities that are just waiting for funding letters to come from the government and we've had more.
More funding letters sooner than in years past. So this is something that.
Is giving us opportunity government spending also remains strong.
And we are seeing that across the board.
And.
If Europe, if you're a university and you've got to you still have to upgrade your infrastructure and so I think cloud for us has given us more weapons in more tools.
And the ability to up level, our conversations where no extreme. This is is a much stronger competitor in east is in these discussions with higher education customers and I think our position for next year, you really is going to be even stronger and our teams are are projecting I mentioned 30.
Percent growth, even even higher growth rates with our combined cloud offerings, which really fit nicely into that the school campus environment. So.
That's what's giving us confidence today.
Got it.
If I can just.
We've been hearing them both.
Supply chain constrained so across the board.
Is that driving some of your customers.
But again, if I look outside the two verticals that strong if I look at it generally.
Overall enterprise spending is that driving customers to give you more visibility in terms of the pipeline than you would have ideally this thing maybe lots to thank you.
Sneak into beginning in the quarter. We were we were worried about the product constraints and supply chain and this is it was something given the fact, we have manufacturing in China and things that were going I move on et cetera et cetera.
The reality is that turned out to be a non issue there were.
Outreach initiatives.
Two customers to ensure that customers that had networking priorities that they get in front of the line and that they accelerate maybe they're buying process.
In the early part of the quarter, but as the quarter progressed, he became less of an issue at this stage.
Production issues or or a complete non issue for us.
So.
We don't have any accelerated buying baked into our plan.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Christian Schwab from Craig Hallum Capital. Your line is now open.
Congrats guys on the other.
Solid solid results and guidance.
No it ever turn to formal guidance, if we kind of look a little bit further I know and thank you.
Echo the.
The commentary that you put out of your verticals, but.
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As we kind of begin to come.
Out of this situation into a recovery scenario can you kind of walk us through the puts and takes of maybe a little bit longer term.
Outlook versus just the next 90 days and how you guys are viewing in preparing.
For a return to more.
The growth environment at which point you think it might be logical.
Yes, so Christian thank you. Thank you for the question.
One of the things we started doing this quarters we started.
Imposing a discipline of our field to look at future quarters, and the bundle for future quarters and cleaning that up.
And.
And this is something that it was it was a practice that we were less disciplined in the past so.
We are already looking at the December quarter, and we're looking at that funnel of opportunities.
Challenging our teams to to clean up the funnels and were scrubbing that so.
Yes, those are the opportunities that we have and that's what's giving us confidence as we look out further.
We have some larger opportunities this strategic accounts.
There are more engineering oriented where we are working specifically with them.
On on applications and use of our technology. These are much larger opportunities.
And we have a a bump into these opportunities that we're working that are progressing really nicely. There will show up in our fiscal Q2, three and four.
And so this is the other area that we're where we look that they fit that's giving us confidence in upside.
To to our forecast.
I don't know Remy I don't know if you want to add anything to that but in general.
I was can you said.
In general, although we're encouraged by the outlook for our fiscal Q1.
Based on our bookings performance and the strength of certain verticals, we continue to see a gradual recovery some of the verticals that we operating like retail for example, or sports and entertainment the demand there remains muted.
In Europe, we do see strength in certain countries. Doc for example, which includes Germany, Austria, Switzerland is recovering.
Whereas the fixture in south which includes front, Portugal, Spain, and Italy is more muted. So we feel like it's going to be a gradual recovery and Christian as much as I'd like to provide you better visibility on the rest of the year, we expect normal seasonality to to play out for.
But at this stage, it's hard for us.
To give you higher visibility on the outlook.
Great. Thank you for that color and then my last question has to do with gross margin. So there were almost done with the entire product.
Refresh.
Do we do we still believe that we can drive gross margins for the company above 60% to is there something we should be paying attention to regarding mix or verticals that would help drive that.
We do accretion and I would say that on the product fronts.
We had a specific program that we talked about which consisted in introducing 40, new product out of the totaled 57 that was identified than were 36. So that is largely done.
But the next move for US is to look at the Universal hardware platform, which will be common across our pillars from datacenter campus to to edge and that will drive significant savings in terms of the cost of goods sold.
This product I would argue also that you heard us talk about a 42% growth sequentially in new subscription bookings you should be expecting subscription bookings as a percentage of revenue to continue to increase.
And that will also drive an improvement in the overall gross margins to 60%.
It's definitely a target and we're hoping that actually would be above 60%.
In the second half of fiscal 21.
Great no other questions. Thank you.
Thanks Christian.
Thank you. Our next question comes from the lineup hop on job from Cowen and company. Your line is now open.
Thank you for taking my question I have a couple of.
Technology Big picture question for you.
One stages motion among the investment community that enterprise spending is going to be probably tell is because.
Most employees will be working from home.
But correct me, if then mistaken, but I think the wireless Lan is probably one of the most strategic assets.
Enterprise can have in terms of.
Joe locating individuals that by enforcing social distancing.
Beginning to see or wireless Lan.
Use case is going to develop through the contact trick or treating and social distancing title.
You ski season, do you foresee a significant demand for that.
And then second.
I'll, let you answer this question and then I have another architectural question that I work.
Yes so.
What we're seeing is exactly what you're pointing out which is that.
The enterprise network they have been more concentrated when people were at work in the office in the enterprise there now distributed but they're still working and so yes.
Uhhuh places more challenges on a distributed edge.
And our timing is very fortunate with our acquisition of airlines a year ago because.
It is a perfect solution for this.
And we have a great. Examples we were talking to schools globally and the nice thing about the environment. The RIN is that within.
Zoo and allows executive engagement at levels that we haven't seen before so we're we're on the line speaking to our lots of different schools. The pay 12 are higher University.
We are where we're talking too yes.
Other customers, where they have work from home environments.
And the reality is our cloud platform provides a single management and control plane, where you have complete visibility to every single client is connected to the network and you've got insights into application performance.
As well as device performance if you will.
So that if you're administering the network all of a sudden you have.
A cloud platform, that's incredibly easy to manage a distributed environment.
And that.
Our time was very fortuitous, the fact that requalifying a portfolio and that we have fabric to provide security from the core to the edge and then we're the only once that fabric in the cloud period, and so we're able to provide the IP teams and people that are managing networks the comfort of having.
The security.
And having the information and the visibility to the entire network that is fully distributed now.
And your businesses as you witnessed they havent shut down or still running to just running from a remote.
Architecture, if you will from the networking perspective, and and Thats, where cloud comes and Thats, where.
We feel like we have an advantage you were running really fast to stay on top of that so I think your insights are spot on and we have the cloud tools to to deliver it to support our customers during this transition.
All right to the second related question is.
Do you foresee an opportunity for extreme in terms of developing applications.
That kind of help.
Enterprises in for social distancing room rate I mean, the of life like can you have trees, how far people are.
Many people on the floor.
Do you foresee as an opportunity monetizing kind of.
You skis in it so are you trying to address this in admit I'm trying to understand that.
Flexion opportunity for extreme to address.
Yeah emerging challenges that we have in that uniquely maybe this is a new market opportunity that you can site.
Yes, I mean, if you if you check out some of our what we have tag new normal solutions.
We we've been working with.
Different contact tracing solutions, we have when you go into our cloud we can actually follow a device we have unlimited data, but we can follow it a device or user throughout an environment.
And then Thats, where we don't have our own contact tracing software, but we can partner with con contact racing applications and we can provide that visibility for example, so the answer is yes. There are lot of people. They are working on applications that that will tie in really nicely to.
The crowd and the fact that.
In our environment in the back and we're offering unlimited data and let's say, you're managing a campus environment.
You can literally follow a device around the campus and then you can see device interaction with other devices.
Where there's this.
Proximity in terms of contact.
You have unlimited data to trace that out and traits devices, which.
This is something that we can make it easy to do and we can make it easy to do that in a centralized location for the answer is yes, we have lots of examples of what we're doing.
Yes, Sunni distinct University of New York system.
We've been very active.
With them.
And working with third parties to develop.
Innovative solutions on this front to help them get back to school students back on campus.
So.
Yes. It is turning to applications, we have a perfect platform and where the perfect partner for software developers and applications. Because we can provide them with incredibly rich data to help feed their applications in the new normal.
Thank you all pigment modeling questions offline. Thank you.
Yes.
Thank you. Our next question comes on the line of Erik Suppiger from JMP Securities. Your line is now open.
Yes, thanks for taking the question that's on a good quarter.
Can you talk a little bit about the impact on ability to penetrate new accounts versus your ability versus how much of the business came from existing accounts.
Yes, Erica our mix, it's typically 20% new 80% existing.
And that was consistent in Q4.
If you heard my comments notice the stat I mentioned around marketing.
It's really interesting what's going on in in the work from home environment in the virtual environment and I mentioned leveling the playing field, yes, our marketing and marketing qualified leads off the charts and its unprecedented what we're seeing that's where we get new logos.
And and also when you think about cloud.
There are opportunities for customers to demo into try an experiment with our cloud by literally just receiving an access point configuring that in the cloud and building from there. So we're expecting to see growth in that percentage of our new logos given what's going on what we're seeing.
In the marketing side, what we're seeing and the significant growth in market qualified leads which will be the source of new logos for us I also mentioned, we have a new chief revenue officer is wells into Chief marketing officer that have identified new routes to market, which basically our partners for excess.
Cream never tapped into the U.S partner groups, if you will.
Are they can provide us with new lease that can fill up profile with new logos and new selling opportunity. So the combination of cloud the combination of the success of our marketing teams.
In the new normal environment, the virtual environment and new routes to market, we're expecting to see growth.
And that percentage of new logo versus existing customers I hope that's helpful.
Yes, that's a surprise the here.
Can you talk about.
How many of your cloud Q customers are using you for analytics and for the breadth of capabilities that you have there.
Yes, Eric where they were in the early stages as far as the analytics to concern. If you go into our cloud we have machine learning insights and what we're doing now as we're launching we have a base level, what we call pilot.
Platform, which provides management for customers as you know and of course in the past year, we added our entire wireless portfolio and now we've added switching and now we've added a core so you got AG all the way to the core where you have that management capability, what we're coming out with soon.
Soon.
As a higher level license, which will be called co pilot, which brings in automation and it takes machine learning and then it operationalize is that machine learning into operating pass. So one of the things that we talk about as an artist Auto Army for example, where we can identify.
Hi that and access point is dropping channels and therefore.
It's not performing so we automatically sand and access points to a customer.
And it did sell provisions. So you don't need an IP person retail store for example to replace access point number 39 with a new access point ship deal went back to get repair. Yes. This is the kind of power and this is where it really hits home with customers because they are real cost savings goal.
Paul.
When you can deliver the back higher machine learning and then automation through the machine learning.
That eliminates operating expense and IP expense for enterprise customers.
Okay, and then lastly has a pandemic made much of the difference from a competitive dynamics perspective do think.
Have you seen any changes in behavior from the likes of Cisco or reach the in light of pandemic.
Yes.
I think everyone is responding to the new normal.
It's harder for larger companies like Cisco to be as focused as we are because.
Webex is under fire from from other platforms that are more effective and easier to use a more efficient.
And we don't have to worry about that we're focused solely on networking cloud.
We haven't seen it.
Acidic competitive response.
By any of our competitors in the networking solely focused on the networking space.
That that we watch very closely but we haven't seen any any kind of competitive response.
It gives us pause for concern.
Good thank you.
Thank you. Our next question comes from the line of Dave Kang from B. Riley. Your line is now open.
Thank you good morning.
First question is on.
HP acquiring silver peak, how does that change the competitive landscape.
Our.
Okay. Thank you.
Nothing changed the landscape at all for US we it's that.
It's very predictable transaction.
And in each team has a smart move for HP to buy them.
The purchase price was that property.
I think there were way over the covered that in that and that process, but.
No. It makes sense for what we're talking about around the edge the evolving market for the secure apprehension and services at the edge is where we are this is going and it fits neatly with the new normal and this is where we've been playing so we have oh, we have a brand solution.
We have our own SD Lan solution. That's it's it's a it's a pretty simple and basic solution.
That that fits into our work from home solutions currently.
It is I would just say, it's evolving that very predictable way given the net new normal and give it given what appears to be a new focus.
Hi, and distributed networks, and that's where ground comes into play in and you. This is where we're all focused right.
So thank you.
Yes.
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I would say is predictable.
The move makes sense.
Pricey acquisition, but.
No surprise from us.
Okay and then my follow up is regarding two verticals I noticed that healthcare was changed for positive to neutral and manufacturing from neutral to positive what drove that those changes.
Well I think.
Now care side, what you've seen.
The Kobe environment, which is starting to get better but elective surgeries.
I have been postponed and it is put our healthcare customers under pressure.
When you non essential or not necessary procedures have been delayed or post.
In response to coded.
We are we're seeing that you're starting to open back up again, depending on where you are on the world. So yes. That's that's why healthcare has shifted to neutral where we've seen some customers.
Delaying spent but the file for healthcare a strong over that over the next six to nine months and then for US there continuing its important for them to support the networks. They have so services have been very strong in healthcare.
And manufacturing risky manufacturing, where that comfort and and we're seeing the manufacturing then.
Continue and strengthened as we look at the opportunities that we have in the file. So yes, our outlook is really driven by our partners in our field.
And and the opportunities and new opportunities that are appearing in our motto and outquarters and so thats what drives our outlook and so you're seeing strength in manufacturing.
And we expect health care to return, but currently.
It was neutral in Q4, and we have that outlook for this quarter.
Got it thank you.
Thank you Sir our next question comes on the line of Ryan Meyers from Lake Street Capital. Your line is now open.
Hey, guys. Just one question for me I think he said new called bookings were up 42% sequentially. When you think the bookings will be back to normal pretty cold and levels or how are you guys kind of thinking about that.
I think.
I'll make a comment let ronnie.
Yes.
I'll, let him comment after.
I make a comment.
We still have usually the recovery from co. They will be gradual and we know we're not we're not assuming that we snap back and so were somewhat.
Guarded and calling for.
A return to previous spending levels.
When you see what's going on.
In the macro economy globally. So I would say that is that is putting a.
Thats tempering, our enthusiasm on the opportunities that.
That we see so we have to build in that conservatism into our outlook, maybe would you like to add anything.
Specifically on the subscription bookings.
As as pointed out there of 42% we would expect this pace.
We continue.
And actually as I mentioned in the prepared remarks, we feel like cloud adoption.
Is accelerating with co bid so so the pace of growth in subscription bookings will remain very strong however, because a lot of it gets deferred in terms of revenue recognition the impact will be spreads over the coming.
Eight quarters, but that bodes well in terms of continuing to increase our subscription revenue.
As a percentage of total revenue.
All right. Thanks, guys.
Thank you as a reminder, ladies and gentlemen task. The question you will need to press star one on your telephone.
Your question press the pound team, we ask that you. Please limit yourself to one question and one follow up question.
Our next question comes on line of one Gen Ho from Bloomberg. Your line is now open.
Great. Thank you for taking my question.
Ed how much of the purchasing delays from last quarter reflect on this quarter's results and how well how do you think that will play out here.
That are 2021 outlook.
Thanks region.
Yes.
There were several deals were pushed into Q4 from Q3.
And we saw the same thing in Q4.
We had several.
Large deals in Q4 that got pushed into our Q1.
So what I would say is it's far as the effect on Q4.
We didnt, we don't feel that the Q4 had a material.
Has materially impacted by kind of the spillover from Q3 as we consider deals that pushed into Q4. The one observation that would make is into smaller deals in what we would call run rate business and this is business is below 50000.
We did notice a slowdown in that run rate business a lot of his partner generated and flowing through partners or from smaller customers and we did feel the impact of a slowdown of that run rate business in both Q3 in Q4 and what we've noticed in Q1 is that we're seeing that.
Run rate business come back to smaller deals in 50000 50000 dollar.
Networking deals $75000 deals is that a lot of these kinds of transactions that.
Our being transacted at that we're seeing until we feel like if there is a snap back we're seeing it more in that run rate business.
The that our funnel of larger deals million dollar plus deals is very healthy as well and we talked about how we created a strategic motion in the field. So we've reorganized the fields were going to do a better job of handling those bigger project larger strategic opportunities.
And then we have a territory model it more tightly aligned with partners and also our marketing teams and lead Gen teams to do a better job of fielding the new leads and to feel more of that run rate business. So.
We think we're better we're better set up to go after the run rate as well as to go after strategic in terms of how we're organized and early in Q1, we've seen a bit of a resurgence of that run rate business.
And then as for my follow up a little bit of a longer term strategic question.
Coming out of I guess, a pandemic closures has in nature of.
Your customer dialogue change regarding the digital transformation I mean, you guys has us the sweet.
To deliver dish digital transformation transformation to enterprise customers. I mean are you starting to see some of those this discussions materialize more flu fully and do you think something done would've been a two to three year type of strategy pool in a lot sooner.
At Rooijen, you're spot on and I mentioned it in my comments.
I talk I made the comment up leveling our conversation extreme is more relevant today than than we've ever been and it's all about cloud and it's all about the ease of deploying secure networks. It's all about intelligence in the network and all this is moving more and more too.
Discussion about data and the data is what's happening in the network.
What are the clients that are connecting whereas the quality of the connection where are they on campus who are they connected to.
All of this intelligence around what's happening in the network can be very strategic information and can tie into other systems that our customers running so the fact that we can provide the insight into what's going on in the data. We can provide the network elements and what's happening to the net.
Work and how the network is the managed what's happening with clients.
All of this intelligence, we're capturing and we just came out with unlimited data. So you can go back and you can look.
As soon as you get on our cloud you have the entire network capture everything that happened in that network captured that powerful we're the only one that offers that were the only one that often cloud choice.
And this is something that's top of mind for our customers. So we can we are clearly up leveling our conversation were more relevant now than we've ever been because of how we can provide superior solutions to the other players that are out there in the cloud space. So.
Yes. This is what giving us a lot of excitement inside of extreme we're seeing and we're being included in and new opportunities and we have the ability to upper level differentiate ourselves, you'll given our cloud and given his focus now on networking. This is the strategic asset and understanding.
As a platform to understand what's going on in your enterprise from data.
Great. Thank you.
Thank you we have plans for one more question. Our next question comes the line Alex Henderson Birmingham Your line is out there.
I got into the second one great.
I was wondering if the.
Expectations on the street, and there's a pretty wide range of outlooks for revenue for.
Slide 21 period ranges from.
900.
In the low end to as high as.
953 million at the high end and.
And the high end that would represent growth on a year over year basis.
First.
So just reported year. So I guess the question is how do you feel about that range do you think it's reasonable to think that you are in the middle of that range do you think.
At the high end.
Any sense of how you want us to think about that relative to.
Obviously, the more constructive tone.
Yeah, I think some people were expecting coming into the print.
Yes.
Revenue I think that.
I would say.
When when you provide that range of 902 950 to get the midpoint of 925 at this stage, we feel that that's reasonable.
Obviously, we were hoping that as we see the recovery, we can do better than that.
But as I mentioned, some verticals are showing strength other remains muted. Some geographies are encouraging others are still slowly coming out coded so to think about our revenue in the mill that range. At this stage is not is reasonable and and obviously as we continue.
Due to build our funnel hopefully we can give a more encouraging message, but it makes a lot of sense.
So.
The other question I wanted to address was just below the line can you give us some sense of what you're thinking in terms of interest expense.
21.
21.
Maybe a little guidance on the tax rate.
Obviously.
Asking this question of virtually every company has reported because.
Zero interest rates out there.
Yes, it's pretty tough to generate any interest cash balances near the end.
You've had some.
Changes in your credit situation.
Make it harder and harder for us to know what to forecast.
Yes. So you know three month LIBOR is that 25 basis point I wish I could say that this is what our term loan a is going to cost us, but under the amendment of our term loan aid.
We are at LIBOR, plus plus 450, so right now we see interest and other because there's a few things in there as well.
At around 6 million, a quarter or 24 million for the years, a hole and as far as tax is concerned we typically guided that at around $2 million a quarter or 8 million for the full year and thats, mostly state local taxes and taxes in.
Some of the countries that we operate outside the us specifically arlon, which is our second packs principle.
But because of and noel's, we don't pay any.
Any federal income tax in the U.S. So about 2 million a quarter is what you should be modeling.
That's very helpful and.
Good luck with.
The Prince thanks.
Thank you.
Thanks.
Thank you at this time showing no further questions I would like to turn the call back over to Ed Meyercord for closing remarks.
Okay.
Thanks, Gigi and thanks, everybody for joining us today.
I want to shout out to extreme employees, who are listening in here for the job well done during what are unprecedented times for us.
Our teams have missile step and are doing great work. So thank you.
Now more than ever for our customers in our partners who are tuning in.
We are here with with our cloud and what we're able to deliver.
We can provide now more than ever the resources solutions and flexibility to navigate.
During a period and then for investors.
We I encourage all of you intend or upcoming.
Connect conference, which is September 16th and 70, it's a 100% virtual so it's easier to again.
We have a chop pool of information.
We are on track that was 10000 attendees.
And.
We're going to offer investor track as well as so you'll be hearing more about that in the future, but we would love to have you join us it connect and we we appreciate.
Your participation on the call. So thanks, everybody and have a great day.
Ladies and gentlemen, this concludes todays conference call. Thanks for participating you may now disconnect.
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