Q4 2023 Extreme Networks Inc Earnings Call
Yeah.
Good morning, ladies and gentlemen, thank you for standing by welcome.
Fourth quarter fiscal year 2023 financial results conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session does a question. During the session you will need to press star one one on your telephone you will Daniela automatic message advising yohan. Its waste. Please note that today's conference is being recorded.
I'll hand, the conference over to your speaker.
<unk> head of Investor Relations. Please go ahead.
Thank you operator, good morning, everybody and welcome to extreme networks fourth quarter and fiscal year end 2023 earnings conference call I'm stakeholder, Vice President of corporate strategy and Investor Relations with me today are extreme networks', president and CEO admire cord and CFO, Kevin Rhodes, We just distributed a press release and filed an 8-K.
Like extreme networks' financial results for the quarter for your convenience a copy of the press release, which includes our GAAP to non-GAAP reconciliation is available in the Investor Relations section of our website at extreme Networks' Dot com along with our earnings presentation.
Today's call and our discussion may include forward looking statements based on our current expectations about extremes future business financial and operational results growth expectations and strategies, our financial disclosures on this call will be on a non-GAAP basis unless stated otherwise we caution you not to put undue reliance on these forward looking statements.
Risks and uncertainties that can cause actual results to differ materially from those anticipated by these statements.
These risks are described in our risk factors in our 10-K report for the period ended June 30th 2022 and subsequent 10-Q reports 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.
Following our prepared remarks, we will take your questions.
And now I will take the I will turn the call over to extremes, President and CEO Edmar Court.
Our performance.
With revenue growth accelerating to 31% in the fourth quarter and 18%.
Overall for the year. This is the second consecutive year of double digit organic growth.
We also delivered a dollar of nine cents a share in EPS up 42% year over year, and we expect the bottom line trends to continue with earnings growing faster than revenues are.
Our free cash flow doubled in fiscal 'twenty three we ended the year with a net cash position, even after paying down $80 million of debt and buying back 100 million of our stock.
We outperformed our original top line outlook for fiscal 'twenty, three and based on industry analyst estimates outgrew the market by two times.
This combined with the increase in volume of larger deals and new logos is a clear indication that we're taking share from our largest competitors customers recognize that extreme offers the simplest and easiest to manage end to end enterprise networking platform in the industry are one network one cloud one extreme solution and he.
With our AI ops capabilities excels relative to the complex and high total cost of ownership solutions of our competitors.
With this differentiation new growth vectors and the higher level of our team's execution I am confident in our continued growth outlook.
With today's modern network is a connective tissue and enterprise digital transformations the demand for our advanced cloud driven solutions remains strong we continue to elevate both our competitive position and the awareness of the extreme brand.
In the market, resulting in funnel growth increasingly customers are recognizing our value proposition and placing their trust in extreme to deliver better outcomes for their mission critical network deployments.
Given our market share position, we're benefiting from being in such a large and growing market, where small share gains have a big impact on exchange financial results.
And our fourth quarter bookings grew mid single digits sequentially and were in line with normal seasonality.
We expect normal seasonal trends going forward as industry lead times returned to normal.
Our U S business was particularly strong in Q4, partially offset by Germany in the APAC region.
With this backdrop, we expect revenue growth to remain strong in fiscal 'twenty four it is start the year with mid teens growth in Q1.
Our competitive differentiation and continued success is being driven by a one network one cloud one extreme solution at the core of our one network promise is our universal hardware portfolio. This is the most flexible highest performing and networking hardware in the industry and with extremes unique and.
Highly differentiated fabric, we make it simple to orchestrate applications and policy across the entire campus from the core to the wireless edge and across the wide area network.
We bring enhanced security the ability to segment networks and zero touch provisioning, eliminating confusion complexity and the need for additional staff. This is in Stark contrast to our competitors fabric solutions, which were designed for service provider and data center networks and that Metro campus.
With one cloud, we're the only provider to offer choice in how customers manage their networks public private edge or hybrid cloud through a single interface.
The only vendor that can manage both extreme and third party hardware, providing enhanced visibility flexibility and the ability to seamlessly upgrade to an extreme network at your own pace.
Finally, our co pilot AI ops capabilities provide proactive insights and analytics to improve network availability and management.
And with one extreme we delivered the industry's most simple commercial terms for licensing with one price for all devices.
Our licenses are portable and portable providing unmatched value and simplicity again. This is in Stark contrast, with our competitors who have complex tiered licensing models that are notorious for hidden costs.
Customers increasingly view their network is a strategic asset to streamline operations power and scale, new services and reduce business risk.
Our AI ops solutions are getting traction with customers as they look for new ways to leverage the network to drive better business outcomes.
This is evidenced by the 182 customers that spent over $1 billion with extreme in fiscal 'twenty three.
Some highlights from our fourth fourth quarter include wins with the University of Mount Union. They upgraded their network with our end to end wired and wireless solution.
New network provides seamless AI and fabric powered automation and optimization across the campus, which improves productivity.
North Hampton NHS Trust, a leading hospital in the U K needed to upgrade its network to keep pace with increasing bandwidth demands generated by Iot medical devices.
And medical applications, and Wi Fi and patient rooms, with a new Wi Fi six the network they are simplifying operations and improving patient care.
One of the world's largest ski mountain conglomerates with 50 resorts across 15 states and three countries chose extreme after deep frustration with one of our largest competitors our value proposition of creating one network managed by one cloud was essential to the customer in order to conduct a seamless <unk>.
Gration with visibility and management capability to both the legacy and new network environments from our cloud eliminating the risk of rip and replace.
We extended success at retail with a key win with a leading grocery chain in Mexico with nearly 900 locations. The company is upgrading its network with analytics and cloud management capabilities to support a better retail experience. They're also leaning into AI ops with our copilot solution to help augment their it staff.
And lastly, we expanded our footprint within MLB NHL, winning new deals with the Arizona Diamondbacks, Philadelphia Phillies in Philadelphia Flyers, cementing our leadership position in sports and entertainment venue.
Extreme was once again recognized by Gartner peer insights as the customers choice for enterprise networking for the sixth consecutive year, we're recognized for our strength of product innovation ease of deployment and outstanding customer support.
We're also named one of the best places to work based on our Flex first remote work policy, our culture of inclusivity and employee satisfaction.
This quarter, we were able to bring our product lead times down again as our supply chain environment continues to improve we have the benefit of a healthy backlog of customer orders with request states that spread fairly evenly through the end of our fiscal year <unk>.
And customer orders remained firm and distributor orders have normalized giving us confidence in our outlook for this fiscal year. We continue to expect our backlog to settle on a range of $75 million to $100 million in Q1 25.
Our exposure to the fastest growing areas of the networking market share.
Share gains new go to market partnerships provide ample growth opportunities to drive double digit growth long term.
We are forecasting market share gains with channel partners, leveraging the strength of our unique solutions in the enterprise market.
We also have an opportunity to expand our subscription business to our entire hardware portfolio in fiscal 'twenty four.
And we introduced a disruptive managed services platform that will expand our go to market footprint and add new growth factor for extreme as we progress through the year.
I'm looking forward to our Investor Day currently scheduled for November 7th at the NHL headquarters in New York City.
We'll provide details soon and we hope to see you there and with that I'd like to welcome our new CFO , Kevin Rhodes and ask him to cover the financials in his inaugural earnings call with extreme Kevin.
Thanks, Ed.
Let me say, it's been a pleasure for me to join extreme at a time when its financial position has never been stronger.
I am encouraged not only by our financial performance, but also our competitive differentiation in this large market with great opportunities to take share.
In my first couple of months on the job unimpressed with the company's culture and the level of talent we have in this organization.
At all levels in our company I see strong sense of urgency ownership curiosity and commitment and a real desire to win.
During fiscal 'twenty three we once again demonstrated the level of execution. This management team expects and we are committed to continuing that in the future.
Let me get into the numbers.
First I'll start with the fourth quarter.
With $363 9 million and grew 31% year over year, and 9% quarter over quarter exceeding the high end of our expectations entering the quarter.
Product revenue accelerated to $261 7 million.
Or 40% growth year over year, and 9% sequentially, reflecting continued improvement in our supply chain environment.
We achieved strong double digit growth in both campus switching and wireless Lan.
Offset by a decline in data center revenue.
Our SaaS IRR grew 25% year over year to $129 million.
Up from $103 million in the year ago quarter.
Driven by the strength of our renewals subscription deferred revenue was up 38% year over year to $217 million.
Total services and subscription revenue.
$102 $2 million.
Up 12% year over year. This gross growth was largely.
And by the strength of our cloud subscription revenue, which was up 27% year over year.
The growth of cloud subscriptions and maintenance drove the total deferred revenue to $501 million.
Up 25% year over year and 8% sequentially.
Our gross margin came in at 62%.
Third 10 basis points sequentially, and 320 basis points from the year ago quarter.
Attribute this to improvements in product gross margin.
Due to higher revenue and an improvement in the supply chain and distribution costs as well as product mix.
Fourth quarter operating expenses were $156 million up from $132 million and a year ago quarter and up from $144 million in the third quarter of 23, reflecting higher investment in R&D and sales and marketing expenses to support our higher revenue growth.
Our strong revenue growth gross margin expansion and operating leverage.
<unk> to another record quarter for operating margin at 17, 4%.
From nine 6% in the year ago quarter and up from 15, 6% in the prior quarter.
To that end fourth quarter earnings per share were <unk> 33.
At the high end of our guidance entering the quarter.
For the full year fiscal 'twenty three revenue of $1 3 billion grew 18% from the prior year.
On product revenue growth of 22%.
During fiscal year 'twenty four we expect continued strong product revenue growth.
Given the growing interest in our solutions by customers and the ongoing normalization of our backlog.
Wireless product revenue grew at over twice the rate of our switching product revenue during the year.
Recurring revenue was another positive story here at extreme.
We generated $380 million of subscription subscription maintenance and a small amount of professional services revenue.
This is highly predictable and visible revenue for our company and we continue to drive more recurring revenue over time.
As we ship products from backlog it is generating a tail wind for SaaS growth.
Gross margin for fiscal 'twenty three ended the year at 58, 9% up 50 basis points year over year based upon improvements in supply chain related costs price increases and <unk>.
Cost absorption, owing to higher revenue and larger scale.
Operating margin of 15, 2% grew 290 basis points from a year ago and operating expenses as a percentage of revenue improved to 43, 7%.
Which is better than our Investor day guidance.
GAAP EPS grew 76% from a year ago, and non-GAAP EPS of $1 nine per share grew 42%.
Representing the significant operating leverage we have in our model.
We also strengthened our balance sheet with strong cash generation and the refinancing of our debt.
We ended the quarter.
Ended the year with.
<unk> net cash position of $10 million after repurchasing $25 million worth of our shares at the average price of $17 32 per share.
The $235 million of free cash flow, we generated during the year, representing 18% free cash flow margin at the high end of our long term model.
Of this amount $75 $5 million was generated in the fourth quarter.
Driven by higher gross margins and EBITDA.
Lastly at the end of fiscal 'twenty, three we refinanced our long term facility with a $200 million term loan and $150 million of available revolving credit.
The interest rate is currently just over 7% annually.
Our balance sheet remains in excellent condition with a leverage ratio well below half a turn.
Now turning to guidance.
We remain optimistic about the enterprise networking spending environment and our ability to take share.
Customer spending trends are reverting back to normal seasonal patterns, given the improvements in our networking supply chain.
As a reminder, the fourth quarter tends to be a seasonally higher quarter than the first quarter.
Our gross margin outlook is also benefiting from an improved supply chain.
Expedite fees and shipping costs continued to improve.
For the first quarter, we expect the following.
Revenue to be in a range of $342 million to $352 million.
Gross margin to be in a range of 59, 5% to 61, 5%.
Operating margin to be in a range of 15, 3% to 17, 6%.
<unk> earnings to be in a range of 28 to 33 per diluted share.
Alan I see tremendous opportunity for extreme to grow our business accelerate our revenue contribution from SaaS and improve our margins and cash flow.
I look forward to laying out some of our plans at our Investor Day later this year.
And with that I'll now turn it over to the operator to begin the question and answer session.
Thank you and ladies and gentlemen, just one question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question Press Star one again.
Nathan.
All the Q&A roster.
Yeah.
No first question coming from the line of.
Alex Henderson with Needham Your line is open.
Great. Thanks, so much.
Nice print and thanks for the good performance for the year.
I was hoping you could give us some sense of.
Whats your expectation is as we look out.
Full year, you had talked about.
15% plus growth over the three year period, I think earlier, obviously, you've outperformed that in 'twenty three.
Is it reasonable to think that you are still on track given the backlog for another 15% plus type of year end 2004.
And just operationally can you give us a little bit of a guidance on the.
Interest and tax line for the FY 'twenty four period.
<unk>.
Thanks.
Thanks, Alex at Kevin as far as.
Outlook for the year do you want to.
Do you want to take that one yes, im happy to I would say.
So we're very much on track, what we laid out already from fiscal 'twenty through 'twenty five outlook.
Feel good about that and I would say, yes, we we feel that we're still going to be in the mid teens growth for the full year.
And then on the I'm sorry.
Interest rate.
Yes on the interest rate, let me just pull that up and we can certainly talk through that.
We believe that.
We're feeling comfortable.
So taxes for the year, we believe we're going to be somewhere again are looking for the full year.
Yeah about 22% full.
Full year tax rate.
So the gap.
non-GAAP, yes.
And then and then when we think yes, that's what I'm talking about non-GAAP and then when we're thinking about interest with $200 million yes.
<unk> outstanding we've got about 7% cost of debt, but then we've got about.
5% generation against that so a 2% spread but not all $200 million.
All of the debts outstanding and then I'd say, we generally think that we'll probably have about.
$150 million to $200 million.
The investment income off that 5%, so I think theyre going to somewhat breakeven.
Or be slightly.
Interest.
Expense, but not a tremendous amount so last year in 2023, you did $12 7 million and interest expense and other income is it reasonable to think that that will come down.
Yes.
Slightly.
Yes, I think it will I think it will come down.
Thank you.
Thank you.
And our next question coming from the line of Timothy Horan with Oppenheimer. Your line is now open.
Thanks, guys two questions if you don't mind.
I'm getting a lot of the same questions, but why are you doing so well with bookings at this point with very large customers why the why the success in large deals and can you talk about.
Your new.
X gene cloud edge product has that been launched or maybe some of the learnings from that thank you.
Thanks, Tim and.
Yes, I think what's happened.
We talked about it in my comments I talked about the volume.
<unk>.
Large deals I have deals that are over $1 million.
Growing and I think this is this is really about the up leveling of extreme in the marketplace.
We've been in that.
The leadership quadrant of Gartner Gartner now for for five years running and our position only strengthened.
It was it was last year that we actually went in front of Cisco and as.
Enterprise customers are looking to upgrade their networks, they're considering extreme now more than ever before and people are surprised to learn that the.
The kinds of customer relationships that we have so when we when kroger, which is the world's largest grocer.
And we are building out the world's largest cloud managed network that was a hotly contested piece of business all the major competitors, where there an extreme one out.
When we when we win one of the world's largest cruise lines, where each ship is $4 million to $5 million.
And we win the first ship and a fleet of 43, and our customers thrilled with the difference in experience in dealing with extreme versus dealing with one of the largest competitors.
That just opens up the door for.
For more.
Then we can take these reference accounts and enterprise customers are surprised to learn that every time you get to Fedex package, it's run through an extreme network or <unk>.
Every time you fly in the U S aerospace that Youre flying.
On an extreme network technically because the FAA runs on extreme and these kinds of stories are.
Becoming more and more known out in the industry and so our reputation has gone up and what it's doing is it's giving us more opportunities and then when we come in with our one network one cloud.
One extreme solution, which is really about this seamless end to end hardware Super flexible high performance hardware.
All managed within one cloud end to end our competitors don't have that.
And when you look at the commercial terms and the simplicity of our licensing the quality of our service.
And especially the performance of our fabric, which is truly the only campus great fabric in the industry.
It really turns heads and so it's creating a lot more opportunity. So here, it's about success begetting success.
<unk> Kroger, they're in the middle of a large acquisition that initial deal is for wireless we have a larger switching opportunity there and then when they closed that acquisition they've standardized on our technology. So just some examples of kind of what's happening in the market.
Our.
Our competitive position is truly differentiate us and then our brand we've up leveled our brands. So that's really helping us get the attention and by the way that also plays into the channel community because partners realize that they see that we're winning these larger deals and it allows us to gain more mind share within the channel.
So.
That's been.
That's been a big part of it in terms of cloud edge Tim.
Tim we know you're over in Berlin at our user conference. This is this is a big deal.
Especially it aware.
Sovereign data becomes more and more important.
And we have we have begun to sell.
Our cloud edge.
Not surprisingly European customers.
One of the things I mentioned in our notes is that we're building and we've just come out with our managed services platform, which is a brand new growth vector for extreme.
More on this later to come but here again this is ware.
Sovereignty and are keeping data and market. If you will obviously with European countries that truly important and so there's a lot of examination going on right now and you know our teams are are actively working a lot of opportunities you'll in markets, Japan is another market, where maintaining the data in market.
Comes really important and I'd say, that's that's the primary.
Uhm interest today, but I think more to come on.
Thank you.
Thank you one moment my next question.
Next question coming from the line up and marching using with links to capital markets. Your line is Nelson.
Yeah, I'm looking for a little bit more detail you talked about.
I think it was weakness in Germany in APEC is that something that you expect to get resolved in the relatively near term.
Yeah, Hi, Eric Yes, we do it actually we're seeing it we're seeing it happen now Jeremy.
Jeremy went into recession and it was the first time that the the country went into recession since World War, two and so it definitely created a bit of a shock slowed down some of the the buying cycles I N and that as impacted us for the last six months or so.
But we we've seen encouraging signs we've seen the final pick up we've seen larger deals come back into the funnel.
And we we see that strengthening the other key driver is what we call a run rate business. This is really coming from the channel.
<unk> the run rate business dried up with supply chain constraints, and we're seeing that come back in and that that also plays a big role in India and in German markets, where we have uhm, a very deep channel and part of our community, where we see a lot of that run right business. So the signs are encouraging for us <unk>.
We feel like.
We bottomed out there, but we're coming back.
Okay, and then EM with.
With Asia Pacific I would say the same thing uhm, yeah at last quarter, we saw the you'll run right business as well as some of the larger project deals go away and now we're seeing them come back with strength. So Asia Pacific is usually one of the first markets to come back and <unk>.
We're seeing that happen and we're also seeing it happened in Germany, Interestingly in India and the rest of the market. They remain very strong and the demand in the U S market remains very strong.
Got it.
Your Oregon.
You talked about share games and I'm wondering if you're doing anything different this fiscal year with regard to channel partner engagement or incentive to really capitalize on what you characterize as your your your rising reputation to to continue to expand those games.
Absolutely Eric So what we've done is we've put in place. We've we've got named <unk> partners, which are just over 200 partners that are our target and more strategic partners, where we put in place specific business plans with them with quarterly business reviews, and I can tell you the.
Growth targets, they are significantly higher than what we're calling for the company and in the interest level is quite high I think <unk>.
The supply constrained environments and some of the macro challenges they've been pinched by some of the larger players and Derek excited about the opportunity to work with extreme and and for US. It's a big opportunity expand wallet sure. So there's there's are named partners there are new partner opportunities.
That that we've that we're looking at I mentioned the M. S. P platform that we're building, we will attract new partners higher volume partners with our platform.
And finally with non named partners or the or the larger base of what we call authorized partners when the run rate business comes back.
With supply chain loosening, we'll see more volumes out of those partners as well. So the answer is yes, we see a huge opportunity and the channel there's clearly channel fatigue with some of the larger players and some of the issues with with their solutions in the marketplace and then some of the issues with their commercial practices.
<unk>.
Understand congrats on the quarter and good luck and that's why I'm 24.
<unk>. Thank.
Thank you.
Thank you and next question coming from the line of Christian Swamp with Craig Hallum in your mind or something.
[laughter].
Good morning, Thanks for taking my question, so so and I'm just wondering if you could.
Go through the puts and takes of you know upside either or potential risks of the 50 per cent guidance for this year, we have supply chain normalizing, we kind of have mixed geographical situation. We have you know.
Tremendous showed success in marketshare games, we kind of have a mixed geographical outlook for the year people other than myself. So I'm. Just wondering you know as we you know have a conversation. This time next year you know what are the what are two things that would make that 15.
Per said 20 per cent and what would be the one or two things that maybe put it at risk.
Sure.
Thanks Christian N yeah, there there.
I mentioned if I go through you know you mentioned G. OS Uhm, we have considerable strength in America's the growth was very strong.
Throughout the year and and America's in queue for and we see that continuing.
I I made the comment on the call earlier and you're familiar with this but again given a relative market size is a call at six 7% share player in the industry.
Yeah. There are these large crumbs small share gains for us have a big impact on our financial statements. So it doesn't take a lot of market share for us to grow our top line and hit that target that we've laid out there.
In terms of G OS.
EMIR is our second largest G O market and it is very healthy.
The challenge for US was specifically in Germany, there and as I mentioned earlier, we are seeing we're seeing them start to come out and we're seeing strengthening in the final and the forecast with Germany, and then importantly, there's this run right business.
And I'll come back to that in a second finally, APAC, we have new leadership and strengthen relationships with district distribution as well as channel there and again I I think if I look at the health of our funnel globally relative to what we're calling I'd say, we have the strongest funnel in that.
Region today, and so that that's changed pretty quickly.
So we're we're very bullish on Asia Pacific and a and a sharp rebound I'd say at a at a at a higher growth gross right I'd say with a Mia we think the other markets are gonna pick up the slack.
In Germany, and then we'll see that recover and then we see continued strength in in the U S market one of the things. We're doing is we're doubling down on our certification investment.
We we are opening up fairly large opportunities that we haven't had in the past and the federal space.
And also our commitment to certifications are helping out what's happening in sled with state and local governments as they look more and more to federal Sir. So this is this is providing some wind in our sails and opening up some new opportunities.
Run rate business is important to mention because if we look at run rate at its peak generating call between $15 million to $20 million a quarter.
You know, we saw that cut in half or more.
With a slowdown is supply chain, so as that returns to normal that's gonna provide us with some tailwinds.
And then.
We do have I mentioned, some new growth vectors.
With commercial terms M. S. P is really us packaging, our existing portfolio and creating a very simple platform and it's really about commercials simplicity and and then the strength of our one network. One cloud one extreme that is God is generate a lot of interest out there.
With some of our existing partners as well as some new partners that are a lot larger than the traditional profile of an extreme partner. So we're guardedly optimistic we've just launched the platform and that will ramp throughout the year as we turned the corner to 25 I mentioned that we're we're enabling the entire portfolio of <unk>.
<unk> to be run and managed from the cloud.
And this is gonna open up growth in subscription this will happen at the beginning of our calendar year and you'll see us build momentum there and then we also have some other initiatives that we believe will be disruptive and create high growth with some very large partners like Verizon for example, very excited too.
Uhm to run with extreme and so we're being added.
To their selling list. So that I mean, these are the upside opportunities obviously from a macro perspective, they're always macroeconomic risks and I.
I think we've we've seen that we've heard about that there's always something unforeseen it kind of comes around the corner, but yeah. At this stage of the game Yeah. I've just been we've just gone through regional director reviews going around the world examining and scrubbing pipeline funnel and you know I.
At this stage of the game, we feel very confident and the demand outlook.
But that's great, though other questions thinks it thanks Christian.
Thank you one moment my next question and my next question coming from the line up.
Hang with the violent Yelena shopping.
Thank you. Good morning. My first question is regarding your competitive landscape just wondering if you're seeing much of a juniper in various <unk> enterprise segments seems like they've been very vocal about their success in enterprise Ah segments.
Yeah, K, Thanks, and you know a good question and I would say if we had to pick.
A competitor, where we go toe to toe that is it is uhm uhm.
Uhm.
Most competitive out there, it's probably Jennifer and their their enterprise solution today, Uhm juniper, an extreme or about the same size in the enterprise space, We don't see them as much as we see Cisco and H P. E at 16, and it's 60 and 15% so 75% of the market that.
We run into is with Cisco and H B, and then to a much lesser extent, juniper, but but but they're out in the market.
So we are seeing them more and and I think they're they're experiencing some of the same success that we are and.
We do have competitive differentiation with Jennifer as you know and the the market knows Juniper is has been a service provider company first they acquired missed which is a Wifi you know was a wifi only a cloud Wifi only company and now they're they're trying to <unk>.
Migrate they're switching solutions and they're trying to push that into the missed framework uhm. It it's more complicated than extreme we have advantages with respect to our cloud and one cloud where versus a multicloud environment.
We have it you have advantages around cloud choice and we also have advantages with our network in our universal hardware platform that to end to end and I'd say the big the big differentiator for us in the market today is a fabric. So it's cloud differentiation in fabric. We are the only player that has a truly differentia.
It it campus fabric.
Juniper as an IP fabric design for data center. It just doesn't work well in a campus environment when customers see our fabric and if we do a comparison head to head.
We're really blowing away our competitors and that's kind of a secret sauce for US right now as people learn about the ease of provisioning network. The ease of deploying policy into a fabric that automatically updates the entire campus environment.
Most of the data center fabrics or static by definition hours is dynamic and flexible and customers really don't believe it when it's pitch in powerpoint, but when they see it and then they experienced it they're blown away. So this has been a huge factor for us winning and you know it's one of our <unk>.
For us, it's a big competitive advantage for us against.
Thank you, but I guess my follow up question is you know they've been very vocal about if you're a capability what is your strategy Uhm a strategy going forward yeah.
Yeah I mean.
Weep at extreme and Jennifer are the are the leaders in the space in terms of Aif's and so we have different we have different capabilities. But this is you know I I I I go to Kroger right. I mean, we we won Kroger and obviously they want to build the grocery store the future.
And that hinges on AI capabilities, and an AI ops, they're looking to automate their environments, they're looking for unique insights actionable insights when we look at our differentiation versus juniper I'd say, it's about the quality of actionable insights.
Hey, I M L tool, but yeah. This is <unk>.
This is where we're focused gave and I would say you're juniper is very good at marketing their capabilities here.
Thank you.
Thank you and our next fight again coming from the line up.
<unk> with West Park capital your line or something.
Thank you. Thank you for taking my question Uhm at just a high level of question for you. If if just for argument's sake. One of your strategic goals were to come true in its entirety and your entire subscription base transition to.
[noise] subscription model, how would that impact product revenue and revenue growth and the timing of revenues. Thanks.
Thanks, Greg It's a good question if you look at.
If you look at today, if you look at our portfolio and what we can manage from the cloud.
It's it's about it's you know it's it's it's less than is less than 50 per cent of our installed base, but in terms of what we're selling it's probably in the 60 per cent range. So the idea that we could we could we could increase the volume from 60% to 100%.
Is is obviously a big deal for US there will also be an opportunity for migrations of our existing base, which would accelerate.
The subscription revenue as well and and our our.
<unk>.
The current solutions that we're offering today, where we have our subscriptions being tied to a hardware some of the new growth initiatives. We have we are untethering the hardware in a way, where we'll be able to sell.
Subscription clouds subscriptions in software subscriptions that are untether to our hardware and that obviously will create a unique growth opportunity.
Thanks, but as you.
The <unk> the sales mix continues to transition to show up for a subscription would the impact on hardware revenue b in any way impacted negatively.
<unk> <unk> <unk> <unk> <unk> <unk>, you still need hardware in the network and so I I think it's our subscription differentiation, our our cloud differentiation you know our fabric capabilities that that when when we when when we were.
When because of our cloud story in our Aif's tools and our App stories.
It pulls through the hardware so as people are looking at building the network of the future in modernizing their infrastructure.
And they consider our capabilities as it relates to software and what we can do with our cloud it helps us take share and it helps us in and winning that business. It posed to hardware. So I would say no. This is this is really about us picking up sure we can lead with with our software caper.
Abilities are cloud capabilities Aif's and then when we when we pull through the hardware.
Great. Thank you.
Thank you nine next question coming from the line of my Genovese with most of the time security going on or something.
Thank you very much can we get interested and update on the on the backlog last quarter. You said five times normal do we have a metric for this quarter.
So like we said last word that we were not going to give you know we were gonna move away from giving a specific backlog number each and every corner I think what it said in his prepared remarks is that our backlog now if we feel like it will start to normalize throughout 2024 and into Q1 to two.
125, we feel good about the level of backlog. We have for instance, it's primarily I'd say 90 plus percent is all and customer orders at this point and show the distribution orders that we had in the past I basically work themselves through the system, especially with supply chain getting better and so we feel good.
About you know those and customer orders and the timing of when those borders need to be shipped to those customers based on their own <unk> I'll call. It like you know upgrade cycle and whatnot, we feel like it will come down fairly evenly throughout the year and into Q1 to 25, so feeling good about the level of backlog that we.
Have you know and and and and the timing of that coming out.
Okay. That's helpful.
What about an expectation since for three months later here just an expectation for when orders might turn positive or every year do you have a.
You there.
So orders turning positive year over year I mean, we we accept that as a growing company. You know we expect orders to continue to grow throughout the year in 2024. So I would say you know each quarter. We are accepting continued improvement and growth you over here and I think yeah, Mike <unk>.
<unk>, if you recall last September quarter.
We had a price in October 1st price increase that we've put in place and that pulled in a huge amount of order volume literally in the last two weeks of the quarter to create somewhat of a lopsided quarter.
Record quarter, if you will for bookings last year in September we do not have a price increase on the board for this year, but uhm we have.
<unk> as Kevin said as we look out it's a year, we are looking at bookings growth throughout the year.
Okay Fantastic and then last question for me I mean do you guys have you know just reiterated I think you know 24 and 25, you know sort of at least mid team's revenue growth. So you know.
And you obviously have a ton of competitive end product momentum there I'm I'm kind of wondering you know in 26 27, even 28 do you think that the basis of competition in the industry is going to be sort of the same as it is now or is there.
Is there is there more work to be done in the you know in the corporate development and product development areas. You know I <unk>. My question really is what do you have to do now to ensure that the momentum continues in 26 27 28.
Yeah <unk> yeah.
And that really goes back to some of the investments that we're making I mentioned that we we we are doing a lot of work I'm in <unk> with some of our growth.
With some of our new row factors.
Uhm managed services and industry is moving more towards managed services and we are building I mentioned in my comments very disruptive platform and it's disruptive into simplicity.
Of how it how it operates commercially the fact that you can have the entire network that you can have complete visibility through <unk>.
Cloud and then you can orchestrate services from the cloud and that you have a work space that you can use to manage it makes it very easy for you to deliver a managed service and it's the managed service model falls down because of the complexity of the commercial.
Commercial terms and then the execution and the operation of delivering all of these services in a way that can be managed and so what we're providing will be by far the industry's most simplest platform for delivering this and we see massive growth on for too.
City here, it's early innings, when I, calling a forecast there but that is clearly a growth factor. We're also branching out into new.
Large more it's more of a service provider type relationship with large customers that have potential to spend a significant volumes relative to our traditional partner base and we're creating a very a private offer that will be.
Very compelling that we believe will be an opportunity for us to take sure Uhm and it provides significant value to these large players relative to the current arrangements. They currently have with some of the largest players in the industry. So there is sure shift we have some big ideas about being disruptive.
And and share shift there.
The final thing I'll mention is our federal investment.
We have been under invested in federal our investment now is really proving to be timely with some of the large opportunities that we have and so with the the search that we're investing in it it it will truly open up other investments. There's also the convergence of networking uhm.
Uhm with cloud insecurity, and we bring a lot of security elements. If you look at technology that we have this very mature we will also be introducing them access security.
<unk> technologies in the future that will be announced in the future that can also be some with disruptive.
Alright, well you have a lot going on so I better I better.
Get back to work.
We are or whatever where where where we're busy but our team they have a lot of growth opportunities.
Thanks, Thanks Bye.
Thank you now I'm not showing any further questions in the queue. At this time I would not like to to call back over to Mr. At my quick by any customer Max.
Thanks, Livia and thanks, everybody for your participation on the call obviously from the investors that joined in today and also we have yeah, our employees a dial in and we have partners and distributors, who listen in as well and maybe some customers. So we appreciate that I'd say I brigit.
Right now there's never been a better time to be an extreme Kevin mentioned it in his remarks uhm, yeah, we're an incredibly strong financial position and we have very interesting and unique growth opportunities that we believe will will sustain this the growth levels that you mentioned, so I wouldn't.
Courage investors to please attend the upcoming Investor Conference then over the next several months coming up in New York details to follow and we hope to see you. There thanks, everybody and have a great day.
Same same gentleman that that somehow.
Conference for today. Thank you for your participation you may now disconnect.
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