Q2 2022 Extreme Networks Inc Earnings Call
Good morning, and thank you for standing by and welcome to extreme networks second quarter fiscal year 2022 financial results. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telecom.
Tom.
Please be advised that today's conference is being recorded I would now like turn the conference over to your speaker today, Stan Kurland Vice President.
<unk> corporate strategy and Investor Relations. Please go ahead.
Yeah.
Thank you operator, and welcome to the extreme networks second fiscal quarter 2022 earnings conference call I'm, staying Koelzer, Vice president of corporate strategy and Investor Relations.
With me today are extreme networks', president and CEO admire cord, CFO Remi, Thomas <unk>, and Chief Technology and product Officer Nabeel Bukhari.
We just distributed a press release and filed an 8-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 extreme networks Dot com.
I would like to remind you that during today's call. Our discussion may include forward looking statements about extremes future business financial operational results growth expectations and strategies go to market planning related to our acquisition of Ipanema the impact of the Covid pandemic and continued challenges of our supply chain as they relate to chip shortages and other materials we call.
Should 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 32021 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 now I will turn the call over to extremes, president and CEO admire cord.
Thank you Stan and thank you all for joining us this morning.
Q2 was characterized by double digit bookings and revenue growth that led to an all time high quarterly record revenue and net income.
We achieved these record results despite the challenging environment and built an incremental $90 million in backlog, which now sits at approximately $300 million in total we see strong demand as we turned the corner into calendar 'twenty two for both our enterprise and <unk> solutions.
This marks the fourth consecutive quarter of double digit bookings and revenue growth, including the fourth consecutive quarter of double digit product revenue growth led by wireless adoption since our first to market introduction of Wi Fi six and the highly successful launches of our universal hardware switching platforms. In this calendar year, we continue to <unk>.
Expect double digit organic revenue growth given the strength of demand and the size of our backlog.
SaaS annual recurring revenue was 88 million this quarter up 55% year over year, and 11% quarter over quarter, driven by a significant interest in our cloud technology, which is also reflected in our 13% market share and number two position in cloud networking.
We're larger than number three and four competitors combined we believe this put extreme in a very strong position as the secular trend towards cloud networking continues to gain momentum with enterprise customers. This is the second quarter, we are disclosing the ALR for our subscription business.
We will be reporting on as we diversify our business by adding new software subscriptions.
The deal Bahari to join us on the call today to provide an update on the highly successful adoption of our cloud management platform and the introduction of our new cloud based Wan edge subscription services for.
For the fourth year in a row, we were named a leader in the Gartner Magic quadrant for wired and wireless networking, we surpassed the largest competitor in the industry in both execution and vision and strengthen our relative position to the rest of the field. This is meaningful third party valve it validation from.
The number one enterprise industry analyst firm.
And our service provider business. We're in the early stages of five G network deployments and this is just the beginning of a multi year investment cycle.
We're on pace to exceed our goal of attaining 20 million of incremental business in <unk> for fiscal 'twenty two in line with our expectations.
Both of our <unk> solutions packet broker and cloud native infrastructure create attractive new growth opportunities for extreme.
The deal will provide more color on this growth opportunity as well.
The consistency of our execution the.
The growth opportunities that we have the level of innovation, we produce and our record results are enabling us to attract the highest levels of talent in the industry.
The same time, our employee retention continues to be among the best in the industry.
Net net we're leveling up our game and it's also evident in the quality and the magnitude of our customer engagement.
I'm also proud to say, we completed the systems integration of if the NEMA ahead of schedule and we integrated <unk> technology into our product portfolio in record time within a quarter.
We're on pace to introduce our extreme cloud branded SD Wan solutions this quarter.
We view these very strong quarterly result in the context of the infinite enterprise and what do we mean by the enterprise.
The future for our enterprise customers in a post pandemic world the infinite enterprise delivers three main outcomes for our customers.
Infinite distribution.
Consumer or user Centricity and unlimited scale as we operate through the cloud.
We deliver this through our portfolio that brings all of our enterprise networking and Wan edge products and services into a single framework.
Data is becoming increasingly critical for our customers and delivering better business outcomes across all our verticals.
For example, retailers connecting supermarkets warehouses corporate offices are relying on cloud analytics to deliver contextual insights that drive operational efficiencies in form sales strategies and drive business growth our.
Our government customers are creating smart roads and highways to deploy advanced transportation technology digital speed signs that improve motor is safety and there is no better example of the value of our data analytics and in our sports and entertainment vertical.
As we announced today, we've just added Manchester United in the NHL to wireless to valued customers who've named extreme they're exclusive Wi Fi data analytics provider. We already have this designation in major League baseball NASCAR and the NFL and will power the analytics for the ninth consecutive.
Super Bowl and a few weeks.
Our analytics solution provides real time visibility into network data, giving customers instant business intelligence and insights regarding fan preferences foot traffic flow mobile sports betting trends application usage and network security.
These are but a few examples of how our customers are leveraging our intuitive insights from networking data to drive better business outcomes.
And with that I'll turn the call over to our Chief technology and product officer, <unk> Hari to elaborate on our vision on the innovations in our cloud or infrastructure Wan edge and <unk>.
Thank you Ed and good morning, everyone.
We continue to execute on our vision of the infinite enterprise extreme cloud IQ Our cloud management platform is the cornerstone of this vision delivering on our commitment to reduce operational complexity decrease risk and increase reliability for our customers of course at cloud speed.
In Q2, we introduced instant stacking, which enables automated deployment management and troubleshooting of stack switching from extreme cloud IQ.
<unk> differentiate it single click feature brings much needed simplicity and reliability compared to our competitors solution saving our customers time and effort.
We have experienced and their trust in our technology is central to our vision of enterprise networking IC teams are increasingly using mobile devices to operate their networks. In Q2, we further enriched that experience now users can do topology onboard any wired or wireless device right from their <unk> mobile app.
Greatly simplifying rollout of network devices across their entire enterprise.
Integrating extreme cloud co pilot are explainable AI platform into the mobile app as well, so valuable and up to date AI ml driven insights are instantly available to enterprise. It teams no matter where they are.
Trust is a central team in cloud networking, we announced the completion of stock to type two and soft too tight three certifications for extreme cloud IQ, which puts us years ahead of our competition and reduces security risk for our customers.
Digital transformation is accelerating and every customer is defining their unique journey.
We had extreme differentiate ourselves by providing choice and flexibility to these customers in Q2, we added an additional deployment option for our extreme cloud IQ customers extreme cloud IQ side Tien tsin can now be deployed in an air gap environment, which enables customers to use <unk> without tapping into a public.
What environment, providing an additional way to satisfy specific security mandate for example in health care and government where schools. Similarly, we enhanced our API framework with additional SD case for Java goal Python Java script, so our customers and technology partners can easily integrated chain.
Cloud IQ into the broader ecosystem of their choice.
We continue to refresh our infrastructure portfolio, both wired and wireless with universal platforms as part of this universal platform strategy. We were first to market with Wi Fi six solutions in Q1.
In Q2, we expanded this Wi Fi six portfolio with new mid range with Universal AP 4000 series with.
With the introduction of 5500 5400, and upcoming 5300 series switching platforms, we will complete the refresh cycle of our edge switching portfolio. This fiscal year from the entry level, all the way to the premium tier cut.
Customers in healthcare education, and other verticals are embracing our universal portfolio of Wi Fi six AAP.
The universal switches with their software Upgradable features like high density multi rate ports and high powered.
Our are perfect complements to Wi Fi six <unk> wireless these universal platforms, both wired and wireless are fully managed from extreme cloud IQ, making this an attractive all inclusive solution for our customers.
To upgrade the edge of their networks.
Earlier and provided an update on the integration of Athena.
We have integrated that if anybody technology into our portfolio in record time, we are on track to launch extreme cloud SD Wan. This quarter. This combines industry, leading capabilities of extreme cloud IQ and the feature rich SD Wan from Aetna into a single subscription.
This is another proof point of our strategy to have our entire portfolio.
Now inclusive of SD Wan fully managed from X IQ This continues to differentiate us from our competitors.
Extreme cloud SD Wan will provide simplified licensing deployment flexibility and advanced features to address the needs of a vast variety of customers across multiple verticals and markets.
<unk> extreme customers will find it operationally easy and financially attractive to add extreme cloud SD Wan to their existing <unk> deployments.
With the introduction of extreme cloud SD Wan our subscription offerings continue to expand and now includes enterprise wide cloud management, AI and ml driven inside and SD that we expect these services and offerings to enhance our subscription growth profile going into fiscal 'twenty three.
Finally, I would like to provide an update about our solutions for <unk> use cases network packet broker and cloud native infrastructure.
These solutions combine cutting edge programmable platforms carrier grade orchestration and advanced features like trust to delivery, we have seen better than expected market interest in these solutions as our initial customers move from proof of concept to successful deployment in production, making our marking a major milestone for us.
Given the strength of our relationship with our partner in this space.
Are seeing new opportunities beyond our initial use cases with that I will turn the call back over to you Ed.
Thanks <unk>.
On top of the strong demand in the first half of our fiscal year, our business momentum is increasing.
Bundle of opportunities is strengthening both from a new bookings perspective, and a substantial backlog of business we built.
We're attracting new customers at an unprecedented pace and this gives us confidence in our ability to capitalize on our growth objectives, we expect to grow our market share and drive record double digit organic growth rates into the foreseeable future and with that I will turn the call over to our CFO Remi Thomas.
Thanks, Ed.
As Ed noted fiscal 'twenty two continues to be a strong year for extreme.
Executing well across the board Q2 total revenue of $281 million grew 16% year over year strong demand for our wired and wireless portfolio drove year over year revenue growth of 15% per product and 18% for services and subscription.
We saw another quarter of double digit year over year growth in total bookings driven by 47% growth in SaaS subscription bookings SaaS annual recurring revenue or SaaS.
<unk> reached 88 million up 55% year over year, and 11% quarter over quarter can.
Historically, our data can be found on page 16 of the Q2 earnings deck posted on our website.
We also reported SaaS deferred revenue of $136 million up 49% year over year, and 11% quarter over quarter non-GAAP earnings per share was 21.
Up from 13 in the year ago quarter and flat from last quarter.
On a geographic basis and looking at total company revenue the Americas enjoyed the strongest year over year growth in revenue followed by APAC.
In EMEA from a vertical standpoint, and looking at total company bookings.
This year over year growth came from sports and entertainment, followed by transportation and logistics retail E rates and higher education.
Turning to product trends wireless enjoying strong recovery.
Year over year and sequentially and accounted for close to a third of total product revenue this quarter wired maintain a healthy double digit year over year growth in both bookings and revenue.
Services and subscription revenue reached a new high at $89 8 million up 18% from the year ago quarter, and 9% sequentially largely driven by the strength of cloud subscriptions.
Total Q2 recurring revenue, including maintenance managed services and subscription rose to $85 2 million or 30% of total company revenue and that was up from 29% last quarter.
The growth of cloud subscription and service renewals drove the total deferred revenue sitting on our balance sheets to $373 million up 20% year over year and 5% sequentially.
Our non-GAAP gross margin came in at 58, 2% in line with our guidance the year over year and sequential decline in the company's gross margin was driven for the most part but by by higher supply chain and freight costs, partially offset by the price increases we implemented in October .
Q1, non-GAAP operating expenses were $126 8 million up from $122 9 million in the year ago quarter and from $124 5 million in Q1, reflecting higher R&D expenses and sales and marketing spending from the acquisition of <unk> E Mail.
Opex as a percentage of revenue was 45, 2% well ahead of the long term target range of 46% to 49% we set at our Investor day last year.
All in all we delivered an operating margin of 13, 1% up two nine percentage points from 10, 2% in the year ago quarter and down slightly from 13, 8% in Q1.
Our cash conversion cycle of 22 days was down substantially from 44 days in the year ago quarter, but up from the historically low level of just nine days in Q1 that was driven by reduction in payables to support timely delivery of components supplies. This quarter, we executed a $25 million share.
Repurchase program for one 8 million shares at an average price of $13 65.
This was part of our previously authorized $100 million share buyback program with $30 million remaining.
Our net debt increased to $149 million up from 139 million in Q1, largely driven by the share buyback had we not done the buyback our adjusted net debt would have seen a $40 million reduction.
Now turning to guidance as we enter the second half of fiscal 'twenty. Two we expect our product book to bill ratio to move closer to one.
Our backlog to stabilize.
We reiterate our outlook for fiscal 'twenty to have a double digit revenue growth and a 10% 15% operating margin for Q3, we expect revenue to be in the range of $276 million to $206 million up 11% year over year at the midpoint Q3, non-GAAP gross margin is anticipated.
To be in the range of $57 three to 59, 3% as we expect elevated expedite fees and freight costs to continue to impact our business Q3, non-GAAP operating expenses are expected to be in the range of $129 three to $133 3 million Q3 non-GAAP , earning.
<unk> are anticipated to be in the range of $21 three to $28 $7 million.
<unk> 21 per.
Our diluted share.
We anticipate that the reduction in expedite and shipping fees combined with the full impact of our recent pricing actions will lead to some gross margin recovery in Q4 with further improvement expected in fiscal year 'twenty three with that I will now turn it over to the operator to begin the question and answer session.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Our first question comes from Alex Henderson with Needham Your line is open.
Hey, guys.
Nice print.
It's gratifying.
Gratifying to see the progress you're making.
I wanted to talk about.
First to the logistics cost.
It should be coming down pretty steeply I recall that.
Back in the summer it was as much as 50% of the supply chain cost pressures, obviously, the parts pressures increase but.
It looks like those have been falling pretty steadily across the industry can you talk about how much.
<unk> of component cost to supply cost at this point.
Yes.
Alex I'll make a.
I'll make a high level comment and then let remi.
Let me jump in maybe with some more detail, but we have seen in.
In terms of the supply chain incremental expense from supply chain, we saw that step up meaningfully.
In the second quarter.
And we do expect that to persist through this quarter.
In Q3.
Then to loosen a bit in the fourth quarter in terms of specifics.
Around.
The parts of that Remy I don't know if you want to add any color for Alex.
I would just say Alex that if I think of how we went from the Q1 gross margin to the Q2 gross margin.
They were sequentially and negative impact.
Both expedite fees, which is what we have to pay to our component suppliers to secure deliveries of key components and freight costs.
In combination these two were four five points.
Gross margins. So you take that four five times, our revenue and that gives you a dollar impact.
See a stabilization of freight cost as we enter the third quarter. Unfortunately, we continue to see the expedite fees increasing slightly this quarter, they will be largely offset by the impact of the price increase which will continue to deliver some benefits in Q3.
But but unfortunately, when we mix the two together.
Kind of neutralize each other which is the reason we're providing this guidance for Q3.
Yeah.
The other night.
Five networks reported and they stated that they had seen a very significant erosion in supply chain availability of components, particularly chipsets.
That's our supporting chipsets in the networking.
A portion of them.
Our systems business.
This resulted in bringing down their forecast for systems quite dramatically for the March quarter sequentially.
Did you see are they said that that step down happened in the last month or so did you have you seen anything.
Comparable to that or is that something that's less evident in your experience.
I would say Alex.
Alex Yes.
I will jump here, Remy and just say that the.
As it relates to chipsets were not seeing that I think some of that has to do as we always talk about our relationship with Broadcom our supply chain teams.
They have worked.
Aggressively to move and establish relationships with the secondary and tertiary component providers and they've done a nice job building I'd say quality relationships. So we have very healthy working relationships.
It's less on the chipset side, where we're constrained and more on the smaller component parts that typically.
Wouldn't be out chasing it would be our Oems who are chasing that.
So we don't see.
We don't see constraints on the chipset side of the equation.
It's more on the smaller component parts.
That that we're working to secure.
Rami do you want to add.
I was just going to add that this comes at a cost. So we're able to find these smaller components Alex.
But you've got to go and find them and they come at a premium today.
So that's what was just built in my prior comments of the fact that we will see.
Increasing what we call purchase price variance, which is basically the cost about components versus our initial expectation in the March quarter to make sure we get our hands on these components.
Well it's interesting.
The spot market completely dried up the <unk>.
Question.
Cisco is pushed through another price increase here in January .
I get it gathering place their own their own the sports price increase over the last year.
A are you seeing that in the field in the.
We're hearing that it is creating.
People looking at Cisco like Youre really just screwing us at this point to the point that some people are exasperated enough to say Im done one out Cisco and looking for alternatives have you seen any.
Either of those dynamics in the field.
We have Alex.
And we did put in place our own price increase on an effective October one.
But it is not surprising given given the cost that Remy subscribing, it's not surprising to see.
Others, others raising price.
And.
Question from Cisco when when Cisco does that it is a benefit to us because it gives us an umbrella gives us more flexibility if we want to contemplate our own price increase but to your point we.
We're taking share in this environment you can see it from our growth from our bookings and I would say.
I think it's more about our cloud and the value add that we're bringing.
As opposed to just commodity price a transaction, but we are seeing more people.
And we're seeing the channel community importantly.
Looking for an alternative.
The last comment I'll make and you did raise the supply chain issue.
We're getting really good marks from our distributors and how we're managing through this environment.
And putting commit dates that were honoring and as a result, we have seen some business come our way because of the confidence in our our delivery and supply chain.
One last question, then I'll cede the floor.
As we start to lap the significant increase in orders.
You get into the June .
Back half of calendar.
22 industry wide.
Orders jumped.
30, $35, 40% year over year.
Every company in the space, so similar kind of big stretch into orders and duration.
Should we start to anticipate a decline in orders in the June quarter.
<unk> that top or decline in orders in the back half of the year book to Bill going below one.
We could have the oddity.
Beat and raise on topline and Bottomline and supply chain to improve but the duration coming in closing orders through the Clinton, how do we think about those mechanics.
Okay.
<unk> Alex.
In my comments.
I noted that we're actually seeing the momentum build.
And.
We we have the same reaction as we were thinking about.
The magnitude of the first.
First half of our fiscal year, the second half of fiscal 'twenty one.
We're not seeing it on our end, we're seeing build that momentum.
And growth, especially when we looked at that June quarter, the visibility that we have in our funnel of opportunities in the pipeline I also mentioned, we're up leveling our team we've made some incredible hires.
Throughout the organization, but a lot of strengthening in terms of the teams and our go to market organization.
And we're seeing unprecedented levels of demand and that.
We see no abatement there.
At extreme.
Okay. Thank you.
Thank you. Our next question comes from Dave Kang with B Riley Your line is open.
Hi, yes, good morning.
Yes.
I may have missed it but did you give out the book to bill for product and services.
Rami do you want to pick that up yes.
Yes, we're very happy to give it to you.
The book to Bill for product was 112 and for services was 116 total company book to Bill was 114.
Got it.
And then just.
I wanted to clarify on the supply chain situations. So I think Remi, you said margin impact was about four five points what about on the revenue side.
Much of revenue was impacted by component shortages.
Well, we increased our backlog by $19 million this quarter.
So.
Yes.
We've been able to deliver everything revenue would have been.
Theoretical but would have been an extra $90 million, but thats the extent of the constraint that we saw this quarter.
Okay.
It's pretty significant.
On the <unk> G. I guess did I hear you correctly that you expect.
Fiscal 'twenty, two <unk> revenue to exceed $20 million did I hear that correct.
Yes, Dave what you heard is incremental revenue from our service provider business to grow.
By $20 million and we are on track for that.
And what about Europe .
You heard ideal comment that we had a lot of.
Two very large customers.
And one of those large customers.
Is it the early stage, there's a lot of proof of concepts that are out in the field and what we're seeing now is it.
We are going into production. So some of these very large carriers that are out there are starting to move from testing phase of cloud native infrastructure into production phase and this is.
Very early stages of ramp so we will start to see other service providers move and transition from sort of test phase to production phase and we're at the very beginning of a ramp cycle there.
<unk>.
And the deal your line I don't know if you want to add any color to what I've just said.
I think youre spot on David what we're seeing is.
That has this five given the cycle kind of like just starts going on and this is a global trend, we're seeing two trends that calendar with each other one is.
That was the whole supply chain and budgets and networking it's like everything so we are seeing that.
Larger customers that entered into proof of concepts like call. It like a couple of years ago.
We are now slowly kind of ramping up their productions.
At the same time, we are actually seeing that the interest in the cloud native infrastructure as opposed to the virtual infrastructure has actually expanded tremendously.
Beyond our expectations. So when you kind of like putting them together that brings the concorde that gives the confidence that Ed is talking about and other part that we're also seeing is for US specifically that we are in a very specific use case for <unk> specific solution or a portion of the <unk> network, but now we're starting to see opportunities.
Broaden that into other areas of <unk> deployment as well so it's overall a pretty pretty good story for us.
Got it does a couple more on the <unk> so.
Given the momentum in <unk> should we be thinking about maybe towards the high end of $50 million to $100 million for fiscal 'twenty three or is it still too early.
I think.
Dave We haven't we haven't updated our guidance yet.
I would defer to Remy in terms of what's what's out on the street, but.
One of the things that we'll talk about is that we are going to have.
An analyst day in late spring and.
We're expecting to dive in and.
Do a deep dive here and I think that's probably.
A time, where we are.
The revised numbers, but rami do you want to add anything to that question.
For now the $50 million to $100 million spend Dave were just given the ramp up that we have the fact that we have networks that are running live with our solution.
And the opportunities that the <unk> market represents we feel confidence about this $50 to $100 million range that we provided last year.
Got it and any new customers in the pipeline.
Yes that question, it's interesting because we have.
We have in the case of our cloud native infrastructure solutions.
We have a force multiplier because our partner.
As a.
They are selling to service providers and so the answer there is yes there are.
There are a lot of new customers.
That are that are adopting the cloud native solution that the deal was talking about so from that standpoint.
We are able to leverage.
Our partners global selling team, that's selling into major service providers and they are winning new business.
And I would say their demand.
<unk> has been greater as <unk> mentioned for cloud native.
Than they had expected so from that standpoint, yes. The other comment and then maybe I will ask you to chime in here.
The technologies that we are building for our.
The very large customers.
Are also applicable to the broader service provider market and so the quality of.
The solutions that we're building.
The carrier grade resiliency, if you will.
Is is spurring growth with our other service provider customers in <unk> I invite you into this.
Sure.
Conversation here.
Yes, Thank you Ed absolutely.
It's all estrogen or I'll make two comments one is obviously around the <unk> I think as I had mentioned in the law.
Answer.
The opportunity to interest in cloud native infrastructure is actually growing so which means a lot of newer customers and by customers and service providers.
Entering that for right now of course remember that things happened a little bit at a different pace and service providers. So these newer customers will go through the early stages there talks and then.
Early deployment, but generally we are definitely seeing a lot more interest along with our partner now to the second comment. These technologies that we are building specifically for <unk>. They are also very relevant for cloud service, but not the mega one speaking of broader <unk>.
Loutish kind of service providers and just kind of give you. An example, one of our European service provider customers actually picked up that solution or portions of that solution that is being used in <unk> and are actually deploying it pretty widely in their environment. So we do see this.
Cross usage.
<unk> technology between the <unk> side on the broader data center market as well and that's true for our packet broker submissions as well, which right now are very very aimed at these massive requirements of the <unk> rollout, but at the same time they are equally.
Valuable to other service providers that perhaps some larger enterprises as well. So we see this technology kind of broadening its endpoints beyond <unk> as the quarters rollout.
Got it thank you.
Thank you. Our next question comes from Eric Martin <unk> with Lake Street. Your line is open.
Yes, I wanted to focus on the SaaS part of the business I understand that a number of very healthy $88 million up 55%, but I wanted to go into the script bookings the subscription bookings at 47% a terrific number but but it is down.
Q1's number was 71% on the bookings I think previously you guys had been running in the 100% range are you seeing a change in the appetite for the subscription form factor for.
Or maybe if I could ask it a different way what is your expectation for subscription bookings in Q3 Q4.
Yes, why don't I think we'll have a few of us that.
In here Eric.
When we when we turned up extreme cloud IQ.
We have an opportunity to migrate and move a lot of customers over into the platform. So.
Some of what you saw earlier in some of the higher growth rates.
Was the benefit that we had of customer migration and so.
From there and I think Thats why you would see as far as X IQ license growth.
The some of the comparisons are not quite as favorable in the year over year comparisons because we had such a such a huge surge in <unk> and <unk>.
IQ subscriptions. So we continue throughout the rest of this year, we continue to see.
Nice growth in.
And new subscriptions, we do have a lot of our <unk> IQ subscriptions tied up in backlog.
So.
If the product is constrained in backlog then.
And then the license would be constrained as well so as we go towards the end of this year, we expect to begin unlocking some of those some of that subscription.
Ascription bookings on the new side.
Renewals as we think about renewals, we expect larger renewal growth to occur.
And the.
And it sort of fiscal.
Fiscal 'twenty four time frame.
<unk> do you want to add to that one other thing I would mention Eric with SD Wan.
And new Wan edge services, we're really expecting a lot of growth there to be driving with cloud subscription.
And I will let remi, if you want to chime in on specific numbers for Eric or how we should think about it.
Then the deal if you want to provide some commentary around kind of this evolution of <unk> subscriptions going forward.
Which we would see to be a kind of a maybe a longer term 30% growth range and then as we contemplate new Wan edge services, which will have a much higher growth rate starting from a lower base.
No Ed I would say.
The initial phase of our growth in the subscription business was really driven by us acquiring new subscribers onto our platform migrating some of the existing customers that had an on prem solution.
Two to a cloud based solution and now that this business is growing what we're seeing this quarter is a significant contribution from renewals of customers that have adopted our solution two to three years.
Go sometimes.
When they were <unk> customers. So now we are seeing a more balanced contribution to the 47% growth that I mentioned in my comments from new customers adopting.
The subscription model as well as renewal of existing customers.
And basically that will grow going forward as we introduce SD Wan.
And hence.
Feeling very comfortable in some of the growth rate that we highlighted a year ago at the time, if you recall.
We talked about 25% to 30% growth in.
In bookings and 25% to 35% growth in revenue.
For the next three to five years to date with the comfortable that both bookings and revenue will grow slightly more than 30% over the period.
Yes, I can add as he said I can add a little bit more color to it. So the way to think about our subscription business is really that the subscription number.
We disclose that is made up of various different cohorts right. So that's.
The migrations that was one of the cohorts.
In our wireless business to cloud wireless business that has been driving a lot of par.
Thank you that's another cohort and then switching Nx IQ, that's a third cohort and so on and so forth. So all of these cohorts kind of like they have their own trajectory they have their own trend.
And when you combine them together, that's the growth number that Randy is pointing out what I would address from a product from a technology point of view that we have we have to really access for for growth in the subscription business. Overall, one is more and more devices that become part of our cloud to essentially increase.
Subscriber and the other part is that how do you increase the ARPA, which is the average revenue per unit how much money you bake off of every every unit and that increases as we roll out new services and your licenses on top of our extreme cloud platform I think they've been talking about co pilot for a while which is R.
AI and ml platform, which is still in public data, but we expect in fiscal 'twenty three that will become <unk> and that will help.
Start to raise our <unk> and then we are adding another cohort on top of all of this which is the SD Wan part, which we acquired from <unk> and EMA and we are just about to launch that this quarter will that will add another revenue cohort or in another words subscription.
Stream on top of what <unk> is delivering us. So our strategy is pretty simple. It is like all of these cohorts, we want them to stack on top of each other they are obviously staggered from each other when they are introduced and when they peaked out and then taper off but net net when you add them, we are very confident as well.
You mentioned in the growth numbers that we have projected well into multiple years from now.
Got it thanks for taking my question and congratulations on the quarter.
Yeah.
Thanks, Eric.
And I think we're going to wrap up at this point.
I just I'd like to thank all of the everyone who joined us today.
And we will be reaching out we're going to be firming up a date for.
An analyst and Investor meeting.
In the late spring time timeframe, so be able to look out for that I also want to reach out and want to congratulate.
All of our extreme employees.
As well as our partners.
For record results in the past quarter and all of the all the hard work that's gone into executing and delivering at.
At extreme so.
I hope everybody stays in good health.
And we look forward to be catching up soon take care and have a nice day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Speaker 1: Qu.
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