Ladies and gentlemen, thank you for standing by, and welcome to the Extreme Networks' Q4 Fiscal Year '20 Financial Results Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Stan Kovler, Vice President of Corporate Strategy and Investor Relations. Thank you. Please go ahead, sir.

Thank you, Gigi. Welcome to the Extreme Networks' fourth quarter fiscal and year-end 2020 earnings conference call. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations. And with me today are Extreme Networks' President and CEO, Ed Meyercord; and CFO, Remi Thomas. We just distributed a press release and filed an 8-K detailing Extreme Networks' fiscal fourth quarter and year-end fiscal 2020 financial results. For your convenience, 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 website at extremenetworks.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 the COVID-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 30, 2019, filed with the SEC and in our most recent 8-K and 10-Q 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 thank you all for joining us this morning. First off, I also want to say thank you to our employees, customers, and partners in the front line of COVID. We continue to face heightened risks in keeping our vital networking infrastructure up and running. It's been truly amazing to see how our customers and teams across our industry verticals facing unprecedented challenges are responding with creative and innovative solutions to deliver enterprise applications to end users with secure and 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 remains vital for our customers and demand remains strong. Now more than ever before, our brand promise of effortless networking is resonating with customers. Our universal hardware platforms—from the wireless edge to the wired core—are managed entirely from the cloud with machine learning insights and new AI tools to drive IQ automation, allowing us to make it very easy to deploy and manage distributed networks. And 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 solutions is strengthening our competitive position in dialogue with customers. So, has Extreme implemented our own solutions internally? And the answer is yes. And how do we do it? Literally overnight. This is the power of ExtremeCloud IQ. This week, Extreme has simultaneously transformed 18 global office locations by deploying new wireless and wired infrastructure, managed by our cloud. By utilizing the capabilities of ExtremeCloud IQ, we were able to pre-configure and architect our global environment before hardware was shipped to locations. Our automated device discovery and provisioning eliminated the need for any physical IT resources in each of the locations, allowing us to complete these 18 offices in a day. This rollout, combined with planned expansions over the next 30 days, will support Extreme's entire global workforce of 3,000 people. On a personal note, I also implemented ExtremeCloud a few months ago, and I admit I'm not that technical. I was able to deploy four 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 demonstrating my cloud environment and network performance with various sites regularly to customers, partners, and employees. It's that easy, effortless. Here are five of many milestones we achieved during the quarter. One, we have strong adoption of our cloud with 42% sequential growth in new subscription bookings and 8.5% sequential growth in our managed devices to 1.1 million. Two, we strengthened our financial position and flexibility by further reducing our revenue breakeven point, delivering on profitability and cash generation during the quarter. Throughout the entire COVID crisis, Extreme has generated positive free cash flow. Three, we revamped our go-to-market strategy and hired Joe Vitalone, our new Chief Revenue Officer. Joe is a proven sales leader with a five-time background as a CRO and an excellent track record of leading and winning in our go-to-market model. As an added benefit, Joe and our new Chief Marketing Officer, Wes Durow, worked together at Mitel and both have had successful experiences pivoting businesses from an on-prem to an as-a-service model. We’ve also identified and are busy building new routes to market and improving processes that will ramp our lead generation, build our funnel, and drive growth. Four, we restructured our R&D organization under our talented Chief Product Officer, Nabil Bukhari, and recently added CTO to 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 operationalized ExtremeCloud IQ to run on all three major public cloud platforms. We're the only company that offers public, private, or on-prem deployments. Not only that, we announced unlimited data for the lifetime of our customer's subscription. In some respect, COVID has leveled the playing field in marketing. We've experienced unprecedented attendance and participation in customer events. During the fourth quarter, we generated over 1.7 billion impressions from our PR efforts. Our webinar attendance was up five times, and we generated three times as many marketing-qualified leads during the quarter than we did during the first three quarters. At our upcoming Connect User Conference, we're expecting a five times participation rate versus last year. The increase in our marketing productivity during COVID is giving us confidence in our ability to grow and take market share. Our sales teams are stepping up in a big way. We restructured our global field organization to enhance coverage of strategic and territory accounts and to support volume sales motions. We also launched a new sales playbook platform that was built by salesforce for sales and will empower every seller in our organization with very specific tools and training for their roles. Our field teams fully embraced and already signed up for our strengthened commission plan and our cloud incentives in the first month of our fiscal year. We just concluded our sales kickoff to receive high marks and a better-than-expected response, given the virtual environment. All in all, our sellers are off to a great start to fiscal '21. On August 10, we will launch Extreme Empower. This is our channel self-service environment with volume-based promotions to enable zero-touch discount authorizations to our distributors and partners. Extreme Empower is already in production with a select group of distributors, and the feedback has been very positive, and we're committed to bringing effortless solutions to the channel as well. So, wrapping up Q4, the few key customer wins during the quarter included the Madrid Digital Telehealth Network. We delivered secure access to the Department of Virtual Health and Social Services for 1.5 million citizens in Madrid, the capital of Spain. Nearly 17,000 healthcare administrators across 30 locations will deliver telehealth services and collect data from remote medical devices using ExtremeCloud IQ. We also conducted significant edge migration of its network using a range of Extreme Edge switches. This is a wallet share win with one of the world's largest manufacturers. Additionally, we achieved significant state, local government, and education wins, including a multimillion-dollar network deployment at the Jefferson County Public School system in Kentucky, the 29th largest system in the U.S., enabling digital learning tools and applications for 169 schools. Outside the U.S., we secured multimillion-dollar deals with education systems in Germany and Japan, driven by ExtremeCloud IQ. As we pivoted to fiscal year '21, we got off to a solid start with strong July linearity and fall visibility that gives us confidence in our ability to deliver 4% sequential growth in what is typically a seasonally down quarter. We expect gradual recovery from COVID to continue throughout fiscal '21 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, Remi Thomas.

Thanks, Ed. Total revenue of $215.5 million grew 3% quarter-over-quarter, mainly driven by product revenue, which was up 4%, while services revenue edged up 1%. Our recurring revenue contributed 34% of revenue, similar to Q3. Non-GAAP earnings per share was $0.03 compared to $0.06 in the year-ago quarter and a loss of $0.14 in Q3. The strong quarter-over-quarter recovery in our bottom line was a result of higher revenue and a material reduction in our costs and expenses. The reduction in our 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 million mentioned on our last earnings call. It also enabled us to generate free cash flow during the quarter of $6.2 million. With $191 million of cash and equivalents on hand at the end of Q4, we have maintained our financial flexibility and liquidity position during a challenging macro environment. Our partners and customers benefited during the quarter from our recently introduced LEAP, the Lending Enablement and Assistance Program, through September 30, 2020. The program enabled us to leverage a third-party financial solutions company to provide additional flexibility to customers during the pandemic. 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 of the June quarter, in line with our previously announced goals. We've also begun taking customer orders for universal hardware platforms that we'll be shipping in early calendar Q4. On a relative basis, our edge switching products outperformed 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 COVID. 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, EMEA 35%, and APJC closed out the remaining 10%. In the U.S., we saw improving momentum in the government and education 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-ago quarter, and compared to 56.7% in Q3. The sequential increase was attributable to high volume, the non-recurrence of the one-time inventory write-down booked in Q3, as well as a reduction in the variable and fixed costs embedded in our cost of goods sold line. Q4 non-GAAP operating expenses of $116.8 million were at the midpoint of our $115 million 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 the year-ago quarter. The sequential increase in our cash conversion cycle was driven mostly by a 10-day increase in Days Sales Outstanding (DSOs) from what was normally low levels of accounts receivable coming out of Q3, combined with a five-day reduction in Days Payable Outstanding (DPOs). 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 from $66.2 million as of 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 represents 4% sequential growth at the midpoint. Q1 GAAP gross margin is anticipated to be in the range of 55.8% to 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 operating expenses in the range of $120.6 million to $124.6 million. The sequential increase in operating expenses is primarily related to the reversal of some of our short-term expense measures implemented in Q4, higher commissions reflecting current revenue expectations and, to a lesser extent, increasing spending 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 $0.14 to $0.11 per share. Non-GAAP net income is expected to be in the range of $0.7 million to $4.9 million, or $0.01 to $0.04 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.

Our first question comes from Alex Henderson from Needham. Your line is now open.

Thanks. Just a quick clarification before I ask you a question. The comment about the universal products being available and taking orders for it, that was CY Q4, not FY Q4 in terms of when it's available, correct?

Alex, that's FY. It's our fiscal year. So it's in the December quarter. We're already taking orders for the 55 '20. Our Universal APs are coming to market in August, and then our switch port switches are coming out in the November timeframe. So it's calendar Q4 and it's 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, and it's good content. I was hoping you could talk a little bit about the difference between what you're seeing in the campus market, what your expectations are for that relative to the environment versus a data center type of environment and also relative to cloud edge. What's going on in core campus? Thanks.

Yes, let me take a shot at that, Alex. What we're seeing—and you could hear it in our prepared remarks—is distributed solutions. With people working from home, you have a different kind of campus network. There's more emphasis on remote workers and various different needs. I mentioned the Madrid Telehealth case, where you've got distributed patients, for example, that you have to take care of. So it’s putting more emphasis on external connections, securing applications out to the edge, and distributed networks, while still being able to provide security and quality of service out on the edge. So what we're seeing is that from a campus perspective, campus networks are alive and well, but they're just more distributed. In our case, when we look at our business and we look at our funnel, our funnel looks good, it looks strong. But as you would predict, we're seeing opportunities that are more distributed in nature. A lot of our customers in this space—state, local, education—are taking advantage of empty campuses to upgrade and refresh networks in a physical environment where they don't have people there physically to cause any kind of disruption to their work environment. So from our standpoint, we continue to see a healthy funnel of opportunities in campus.

Okay. If I could follow-up, my follow-up question on this would be when you're looking at the cost-cutting side of the equation, obviously you've got some expenditures that were very tightly controlled in the most recent quarter. You talked about seeing T&E coming up, and some of those expenditures are coming back, and I get it that your spending is coming up. But are you also complete on your cost-cutting program, or is there still more benefits that could accrue over the next quarter or two as we go forward into the back half of the calendar year? Thanks.

Remi, I'll jump in and then you can add. But as Remi mentioned, some of the actions that we took in our fourth quarter, we don't have the full quarter benefit. So you'll see a full quarter benefit as we roll into fiscal '21. But right now the table is set as far as our cost structure. As far as our plans are concerned, we are planning more expense reductions while anticipating sequential growth. Remi, do you want to add anything to that?

No, no. I think it's fair that the majority of the long-term actions are done and if anything, spend is going to go up as a result of higher commissions as bookings recover, and higher T&E. Although I would say, Alex, that we can keep T&E 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 JPMorgan. Your line is now open.

Hi, good morning. Thanks for taking my question. If I can just ask you about the verticals here, where you're seeing strength, government and education that you mentioned, how should I think about the sustainability of this higher demand that you’re seeing, given that you just mentioned that they had, sometimes particularly for the education sector, they’re using the opportunity for students not being on campus, et cetera. What gives you the confidence about this demand level sustaining for a bit longer than just being more temporary? And I have a follow-up. Thank you.

Sure. Samik, if we look at state and local government and education spending, we have a few different buckets: the government entities themselves, K through 12 schools, and then higher education. So what gives us confidence is all the opportunities that we see in our funnel. Our sales cycle can vary—sometimes we see deals close within a quarter, while others may take a year to evolve. So that’s one of the things that we have visibility to in terms of our field and the opportunities we see in the funnel. The other thing that happened this year is our e-Rate filings were up 30%. This year, which is different from years past, the government—USAC—started sending out funding letters earlier than usual. We have seen our wins in e-Rate being funded earlier, resulting in a big pile of opportunities waiting for funding letters to come from the government. We have also seen strong government spending across the board, and if you're a university, you still have to upgrade your infrastructure. So I believe cloud for us is giving us more resources and tools and the ability to broaden our conversations, making Extreme a much stronger competitor in discussions with higher education customers. Our position for next year’s e-Rate is going to be even stronger, and our teams are projecting even higher growth rates with our combined cloud offerings that fit nicely into the school campus environment. So that’s what's giving us confidence.

Got it. If I can just follow-up, we've been hearing about some supply chain constraints across the board. Is that driving some of your customers to—particularly if I look outside the two verticals that are strong—if I look at a general kind of overall enterprise spending, is that driving customers to give you more visibility in terms of their pipeline than you would have ideally at this time, maybe last year? Thank you.

Samik, at the beginning of the quarter, we were worried about product constraints and supply chain issues, given our manufacturing in China and various factors impacting that. The reality is that turned out to be a non-issue. There were outreach initiatives to customers to ensure that those with network priorities got in front of the line, potentially accelerating their buying process in the early part of the quarter. However, as the quarter progressed, it became less of an issue. So, at this stage, production issues are a complete non-issue for us, and we don’t have any accelerated buying baked into our plan.

Thank you. Our next question comes from the line of Christian Schwab from Craig-Hallum Capital. Your line is now open.

Congrats on the solid results and guidance. Our return to formal guidance, if we kind of look a little bit further, I know and thank you. I'll echo the commentary that you put on your verticals. But 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 and preparing for a return to a more growth environment and at which point you think it might be logical?

Yes. So, Christian, thank you for the question. One of the things we started doing this quarter is imposing discipline on our teams to look at future quarters and the funnel for future quarters. We are already looking at the December quarter and scrubbing that funnel of opportunities, ensuring they are valid. We have larger opportunities with strategic accounts that are engineering-oriented, and we are working specifically with them on applications and the use of our technology. These are much larger opportunities with a bucket of them progressing nicely that we anticipate will show up in our fiscal Q2, Q3, and Q4. This is what’s fueling our confidence and potential upside for our forecast. Remi, do you want to add anything?

I would say that while we are encouraged by the outlook for fiscal Q1 based on bookings performance and the strength of certain verticals, we continue to see a gradual recovery. Some verticals like retail or sports and entertainment are still seeing muted demand. In Europe, we do see strength in certain countries, including Germany, Austria, and Switzerland, which are recovering, while the picture in southern Europe—France, Portugal, Spain, and Italy—remains more muted. So we believe it's going to be a gradual recovery. As much as I'd like to provide better visibility on the rest of the year, we still expect normal seasonality to play out, but it's hard to give higher visibility on the outlook.

Great. Thank you for that color. My last question relates to gross margins. Now that we're almost done with the entire product refresh, do we still believe that we can drive gross margins for the company above 60%? Is there something we should be paying attention to regarding mix or verticals that would help drive that?

We do, Christian, and I would say that on the product front, we had a specific program consisting of introducing 40 new products out of the total of 57 identified, and we're about 36 in. So that program is largely done. The next move for us is to look at the universal hardware platform, which will be common across our pillars from data center campus to edge. That will drive significant savings in terms of the cost of goods sold on this product. I would argue also that you heard us talk about a 42% growth sequentially in new subscription bookings, and you should be expecting subscription bookings as a percentage of revenue to continue to increase, which will also drive an improvement in the overall gross margin. So 60% is definitely a target, and we're hoping it could 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 line of Fahad Najam from Cowen and Company. Your line is now open.

Thank you for taking my question. I have a couple of technology, big-picture questions for you. One, there's this notion among the investment community that enterprise spending is going to be probably challenged because most employees will be working from home. But correct me if I'm mistaken, but I think the wireless LAN is probably one of the most strategic assets that an enterprise can have in terms of geo-locating individuals and thereby enforcing social distancing. Are you beginning to see your wireless LAN use cases develop into the contact tracing and social distancing type of use cases, and do you foresee a significant demand for that? And then second—let me answer this question and then I have another architectural question.

Yes. What we're seeing is exactly what you're pointing out—that the enterprise network that was once concentrated with employees in the office, is now more distributed with employees working from home. This places more challenges on a distributed edge. Our timing is very fortunate with our acquisition of Aerohive a year ago because the cloud is a perfect solution for this. We are actively communicating with schools globally, and it's remarkable how platforms like Zoom have allowed for executive engagement that hasn't been witnessed before. We can now manage networks with complete visibility on every client connected, and gain insights into application and device performance. Thus, our cloud platform allows for excellent management of distributed environments. Our acquisition strategy has aligned perfectly with these changes, providing robust security and information on the enterprise network's performance. This allows businesses to operate efficiently while working remotely from a networking perspective. Overall, we feel we have significant advantages and we're staying ahead of these trends.

All right. So the second related question is: do you foresee an opportunity for Extreme in terms of developing applications that help enterprises with social distancing rules? I mean, your Wi-Fi can trace how far people are, how many people are on the floor. Do you foresee an opportunity in monetizing this kind of use case? And if so, how are you trying to address this in any way? I'm trying to understand if there's an inflection opportunity for Extreme to address emerging challenges that we have in a unique way, and maybe this is a new market opportunity that you can size upon?

Yes. If you check out some of our solutions, what we refer to as ‘new normal solutions.’ We have been working with different contact tracing solutions. When you access our cloud, we can actually monitor a device. Importantly, we also have unlimited data, which allows us to track a device or a user throughout an environment. While we don't have our own contact tracing software, we can partner with contact tracing applications to provide visibility. So the answer is yes. We have multiple examples of what we are doing. The State University of New York system, for example, we have been engaged with them and are working with third parties to develop innovative solutions to help them get back on campus while maintaining social distance and safety. We’re identifying many applications suited for our cloud platform, and we are in a unique position to address these emerging challenges.

Thank you. I will take my other questions offline. Thank you.

Yes.

Thank you. Our next question comes from the line of Erik Suppiger from JMP Securities. Your line is now open.

Yes. Thanks for taking the question. Congrats on a good quarter. Can you talk a little bit about the impact on your ability to penetrate new accounts versus how much of the business came from existing accounts?

Yes. Erik, our mix typically is 20% new and 80% existing, which was consistent in Q4. If you heard my earlier comments, the marketing stats are remarkable, given what’s happening in the work-from-home environment. Our marketing qualified leads are unprecedented, and that will source new logos. The cloud also provides opportunities for customers to demo and experiment with our cloud by simply configuring it through received access points. Our expectation is to see growth in new logos. Additionally, we have identified new routes to market, which substantially enhances our prospects for new leads. We expect significant growth in the percentage of new logos compared to existing customers.

Yes, that’s a surprise. So good to hear. Can you talk about how many of your Cloud IQ customers are using you for analytics and for the breadth of capabilities that you have there?

Yes. Erik, we are in the early stages of analytics. Our cloud platform provides machine learning insights, and we are launching a pilot platform for customer management. Over the past year, we have integrated our entire wireless portfolio, and we've also added switching and core capabilities. We plan to introduce a high-level license we call 'co-pilot,' which will harness automation, operationalizing machine learning into tasks. For example, we can automatically identify a malfunctioning access point and replace it without IT personnel being present at retail. Such capabilities enable significant operational savings for our customers.

Okay. And then lastly, has the pandemic made much of a difference in competitive dynamics? Have you seen any changes in behavior from the likes of Cisco or HP in light of the pandemic?

Yes. Everyone is responding to the new normal. Larger companies like Cisco find it harder to focus solely on networking as they contend with challenges in Webex, for example. In contrast, we are singularly focused on networking and cloud. There has been no specific competitive response from competitors, which gives us confidence.

Very good. Thank you.

Thank you. Our next question comes from the line of Dave King from B. Riley. Your line is now open.

Thank you. Good morning. First question is on HPE acquiring Silver Peak. How does that change the competitive landscape?

Dave, thank you. It doesn't change the landscape at all for us. It's a very predictable transaction. HPE made a smart move in acquiring them. The purchase price was a bit excessive, which we anticipated. But it aligns with the evolving market for secure applications and services at the edge, fitting into the new normal. We have our own SD WAN solution that directly interacts with our work-from-home solutions. The market is trending toward distributed networks, where we are concentrating our efforts. Therefore, we see the transaction as predictable and strategically favorable.

Thank you.

You're welcome.

And then my follow-up is regarding two verticals. I noticed health care was changed from positive to neutral and manufacturing from neutral to positive. What drove those changes?

On the health care side, the situation is improving, but elective surgeries have been postponed, putting pressure on our health care customers. While we expect some recovery depending on location, that’s why health care moved to neutral with a strong funnel of potential wins over the next 6 to 9 months. Alternatively, manufacturing is continuing to see increased spending, contributing to the positive outlook given the opportunities we have in the funnel.

Got it. Thank you.

Thank you. Our next question comes from the line of Ryan Meyers from Lake Street Capital. Your line is now open.

Hey, guys. Just one question for me. I think you said new cloud bookings were up 42% sequentially. When do you think the bookings will be back to normal pre-COVID levels? Or how are you guys kind of thinking about that?

I think I'll make a comment, and Remi can add. We still see the recovery from COVID as gradual and do not anticipate a snapback, tempering our enthusiasm due to the current global macroeconomic conditions. So we are cautious about predicting a return to previous spending levels.

Specifically on the subscription bookings, as pointed out, they’re up 42%. We would expect this pace to continue as COVID accelerates cloud adoption. However, since much of this gets deferred in terms of revenue recognition, the impact will be spread over the coming eight quarters. That bodes well for increasing our subscription revenue as a percentage of total revenue.

All right. Thanks, guys.

Our next question comes from the line of Woo Jin 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 do you think that will play out for your better 2021 outlook?

There were several deals that were pushed into Q4 from Q3, and we saw the same trend in Q4 where large deals moved into Q1. So we don’t feel that Q4 experienced a material impact from the spillover into Q4. We noticed small deal segments tended to see slower growth, particularly in our partner-generated run rate business. However, we’re starting to see that run rate business return in Q1.

Got it. And then as for my follow-up, a little bit of a longer-term strategic question: Coming out of the pandemic closures, has the nature of your customer dialogue changed regarding digital transformation? I mean, you guys have the suite to deliver digital transformation to your enterprise customers. Are you starting to see some of those discussions materialize more fruitfully? And do you think something that would have been a two to three-year type of strategy will move on a lot sooner?

You’re spot on, Woo Jin. I mentioned in my comments how we are up-leveling our conversations. Extreme is more relevant today than we've ever been due to the focus on cloud and ease of deploying secure networks. We're also gathering intelligence on data, which is crucial for clients. This shift in focus is resulting in us being included in more virtual discussions. Our cloud tools are uniquely positioned to deliver flexible and simple solutions to clients, and we are well-prepared for these emerging needs in the market.

Great. Thank you.

Thank you. We have time for one more question. Our next question comes from the line of Alex Henderson from Needham. Your line is now open.

I got into the second one. Great. I was looking at the expectations on the street, and there's a pretty wide range of outlooks for revenue for the FY '21 period. It ranges from $900 million at the low end to as high as $953 million at the high end. At the high end, that would represent growth on a year-over-year basis versus the 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 were in the middle of that range? Do you think you could be at the high end? Any sense of how you want us to think about that relative to obviously a more constructive tone than what I think some people were expecting coming into the print.

Remi, you want to take that?

Yes. When you provide that range of $900 million to $950 million, look at the midpoint of $925 million. At this stage, we feel that that's reasonable. We hope that with the recovery, we can exceed that. However, as we see the growth, we also consider that certain verticals are experiencing strength while others remain muted; some regions are encouraging, while others are emerging from COVID more slowly. Therefore, it makes sense to target the mid-range of expectations for now.

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 in CY '21—FY '21 and a little maybe guidance on the tax rate? Obviously, I've been asking this question of virtually every company that's reported because with near-zero interest rates out there, it's pretty tough to generate any interest in cash balances. And on the other hand, you've had some changes in your credit situation that make it harder for us to know what to forecast there.

Yes. Three months LIBOR is at 25 basis points. 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 A, we are LIBOR plus 450. So we see interest and other charges around $6 million a quarter, or $24 million for the year as a whole. As for taxes, we typically guide around $2 million a quarter or $8 million for the full year, mostly for state and local taxes, and taxes in some countries outside of the U.S., specifically in Ireland. However, because of NOLs, we don't pay any federal income tax in the U.S. So about $2 million a quarter is a fair model.

Perfect. That's very helpful and good luck with the prints. Thanks.

Thank you.

Thanks, Alex.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Ed Meyercord for closing remarks.

Okay. Thanks, Gigi, and thanks to everybody who could join us today. I want to acknowledge Extreme employees who are listening in today for the great work during unprecedented times. Our teams haven’t missed a step and are doing great work. Now more than ever, for our customers and partners tuning in, we are here with our cloud and what we're able to deliver. We can provide the resources, solutions, and flexibility to navigate during COVID. To our investors, I encourage you to attend our upcoming Connect Conference on September 16 and 17. It’s 100% virtual, making it easier to attend. We’ll have a wealth of information with around 10,000 projected attendees, and we'll offer an investor track as well. So look for more information on this in the future, and we’d love to have you at Connect. Thank you for participating on the call, and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.