Good day, and thank you for standing by. Welcome to the Extreme Networks Second Quarter Fiscal Year '23 Financial Results. At this time, all participants 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 your speaker today, Stan Kovler, Vice President, Corporate Strategy and Investor Relations. Please go ahead.

Thank you, and welcome to the Extreme Networks fiscal second quarter 2023 earnings conference call. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations. With me today are Extreme Networks' President and CEO, Ed Meyercord; and Interim CFO, Cristina Tate. We just distributed a press release and filed an 8-K detailing Extreme's financial results for the quarter and also an 8-K detailing our CFO transition. For your convenience, a copy of the press release, which includes our GAAP to non-GAAP reconciliations, our earnings presentation are both available in the Investor Relations section of our website at extremenetworks.com. And I would like to remind you that during today's call, our discussion may include forward-looking statements about Extreme's future business, financial and operational results, growth expectations and strategies. All financial disclosures on this call will be made on a non-GAAP basis, unless stated otherwise. 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 ended June 30, 2022, is 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, it's my pleasure to turn the call over to Extreme's President and CEO, Ed Meyercord.

Thank you, Stan, and thank you all for joining us this morning. We had another record quarter, as demand for cloud-driven networking and for Extreme Solutions remains exceptionally strong with good visibility through fiscal year end '23, leading us to raise our full year revenue outlook to the high end of our range. Our share gains are evident by a second consecutive quarter of double-digit revenue growth, 17% growth in product revenue, record free cash flow and a sizable backlog. The resiliency of our business combined with a strong execution of our teams and focus on shareholder value continues to position Extreme well for the long-term. The sequential increase in revenue and margins led to continued improvement in our operating model to record levels just shy of 15% operating margin, and we achieved EPS of $0.27 in Q2, up from $0.21 in the year ago quarter. We expect these bottom line earnings trends to continue. Both our fabric and cloud solutions are driving significant differentiation for Extreme, particularly due to our ability to deliver network automation, hyper-segmentation, unmatched security. Today, our fabric solutions offer a simple way for customers to tie all the components of their network together, and the branch, campus, data center to the cloud. It removes network complexity, speeds deployments, and streamlines operations. The transition to universal products has proven successful, with well over 60% of our bookings now on universal platforms for Wired and Wireless Products. We're on track to achieve this transition by year end calendar '23 with over 90% coverage of our portfolio with the universal platform. This calendar quarter, we'll be announcing a set of unique innovations, involving ExtremeCloud SD-WAN and our widely deployed Extreme Fabric. These capabilities will enable our customers to improve visibility, management, application performance, and security at the edge of the network. This further extends our vision of one network, one cloud, one Extreme over the wide area network with a truly differentiated fabric technology. We're focused on helping our customers find new ways to deliver better outcomes across their organizations. During the quarter, 44 customers spent more than $1 million with Extreme, up from 37 last quarter, is another signal of how Extreme continues to take share and move up market. The top wins for the quarter included a multinational bank in Hong Kong, where we beat two of our largest competitors to modernize the infrastructure for surveillance, the digital cornerstone for safety and security. After using a competitor for many years, Extreme was able to bid on this project and win. A large school district just outside of Houston was looking to streamline management of its network, which sprawls across 92 buildings and supports 60,000 students. Our fabric technology will provide full visibility across the network, simplifying and unifying network management, improving security at every site, and automating network configuration and provisioning to significantly reduce time spent on new deployments. A leading NHS Trust Hospital and Cancer Research Center in London upgraded their networks to continue to offer patients the most modern care. New bandwidth-heavy applications, telehealth visits, and medical devices are crucial for patient monitoring and require a Wi-Fi 6E fast, reliable, low latency network that could be easily managed by Extreme Cloud IQ. Our competitive position has never been stronger. Given our relative size, even small share gains have a large impact on Extreme's topline. We remain the fastest-growing company in our space. Third-party analysts, industry press, and partner community have taken notice and we received numerous accolades and awards for our solutions and service. For the fifth consecutive year, we were named a leader in the Gartner Magic Quadrant for Wired and Wireless Local Area Network Infrastructure. Our innovation, vision, and continued execution with solutions like fabric and digital twin were significant factors in our ranking. Our new customer logo wins contributed a higher percentage of our bookings. About half of our new logo wins are coming, because of fatigue and lack of innovation from some of the largest players in the industry. We're taking advantage of these market dislocations and when customers realize that they'll benefit from interoperability between platforms, simpler licensing structures, productivity from Extreme versus our largest competitor, we're quick to capitalize on these opportunities to win new business. More customers and partners choose Extreme, because of our ability to offer unlimited end-to-end network that can be managed within a single-cloud platform. Customers also love our universal hardware that offers choice of both cloud-based and on-premise deployments. As product lead times continue to improve, we expect our share gains to accelerate. Last quarter, we strengthened our go-to-market organization by appointing Pete Brant as Senior Vice President of U.S. Sales. Pete is a proven sales leader focused on taking share and building SaaS organizations coming from leading networking and security companies, such as F5 and Fortinet. We ended Q2 with ARR growth of 29% year-over-year, while SaaS deferred revenue grew at 38% year-over-year. Our innovative cloud solutions are pulling through product sales and we believe the level of organic subscription growth we're seeing is sustainable. In addition, the improvement in supply chain, our ability to deliver products, most notably Wireless LAN this quarter supported a strong pull-through of software subscription for the next several years. On the supply chain side, our ability to pull in components enabled us to achieve revenue upside, which we believe is sustainable into the second half of the year. As a result, we are raising our revenue outlook to the high end of our prior 10% to 15% guidance range. We continue to be laser-focused on tactical execution to meet our customers' needs. This quarter alone, we qualified an additional 37 component suppliers and significantly reduced our parts shortages. Based on all the actions we've taken with our supply chain over the past year, we now have visibility and confidence that the ramp of our product deliveries will continue to improve and reduce lead times. With a strong outlook for bookings growth and the gradual improvement of supply, we expect backlogs to remain relatively stable for the next several quarters. We're in the beginning stages of an accelerated wave of product shipments and revenue growth over multiple quarters. The majority of our backlog consists of the latest generation universal products that pull through subscription and service bookings. So when our backlog shifts, it will also unleash subscription and maintenance services revenues over the next several years. Throughout calendar '23, we have several universal product innovations coming to market that will drive better outcomes for our customers. In addition to the 5720 switches designed for higher data throughput, such as our Wi-Fi 6E access points will be coming to market with new industrial switches for hardened environments and smart city deployments. New distribution switches to support the higher power over Ethernet and density requirements of Wi-Fi 6E and Wi-Fi 7 in the future. Several new data center and core products will also be launched throughout the year. Lastly, I want to welcome our Interim CFO, Cristina Tate to the call. Cristina is a proven and highly respected leader at Extreme, and I expect a smooth transition as we enter this new growth phase. Remi accepted a new opportunity with a privately owned software company and will stay on with us through the middle of next month to oversee the transition. He was a great partner and leader, and has set the company up for success. With that, I will turn the call over to Cristina to cover the financials.

Thanks, Ed. Q2 results highlight solid execution by the team, as well as an improvement in the supply chain environment. Our ability to deliver product resulted in record revenue and continued the trend of double-digit revenue growth we have achieved in seven of the last eight quarters. Our SaaS ARR continued to rise. We improved our margins sequentially, and we generated record cash flow, which enabled us to repurchase 2.6 million shares of our common stock. Our second quarter revenue of $318.3 million grew 13% year-over-year and 7% quarter-over-quarter, which was above the high end of our expectations entering the quarter. With a product book-to-bill ratio of 0.9 times for the quarter, our backlog stands at $542 million, equivalent to 2.5 quarters of product revenue. The slight decrease in backlog primarily reflects accelerated product shipments. Product revenue grew a healthy 17% year-over-year and 8% sequentially, attributable to both campus switching and Wireless LAN, partially offset by a decline in data center. The ongoing loosening of the supply of access points resulted in Wireless LAN revenue accounting for 34% of product revenue, up from 30% in Q1. Subscription bookings grew by 30% year-over-year, in line with the long-term guidance of 25% to 35% growth provided at Investor Day last May. SaaS ARR grew 29% to $115 million, up from $89 million in the year ago quarter. Subscription deferred revenue was up 38% year-over-year and 9% quarter-over-quarter to $187 million. Q2 earnings per share was $0.27 above the high end of our guidance entering the quarter. Revenue on a geographic basis once again reflects the timing of product shipments to our distributors across the regions. Regarding our bookings performance, recall that we experienced very strong demand in Q1, resulting from pull-ins of deals from Q2, ahead of the list price increases as of October 1. Then during Q2, we saw less of a year-end budget flush than we normally see and a tight supply environment. This resulted in a slight decrease in bookings in Q2. However, for the first half as a whole, bookings grew low-single digits year-over-year. As a reminder, last year in the first half, our bookings grew in the mid-teens year-over-year. From a vertical standpoint, our mix did not change meaningfully this quarter, with government and education accounting for over 40% of the total, healthcare at a bit over 10%, manufacturing at approximately 10%, and retail, transportation, and logistics approaching 10%. Services and subscription revenue was $94.9 million, up 6% year-over-year. This growth was largely driven by the strength of cloud subscription, up 33% year-over-year. Total Q2 recurring revenue, including maintenance, managed services, and subscriptions was at $88 million, or 28% of total company revenue. The growth of cloud subscriptions and maintenance drove the total deferred revenue to $446 million, up 19% from the year ago quarter and 5% sequentially. Our gross margin came in at 58.5%, up 90 basis points sequentially and 30 basis points from the year ago quarter. This was mainly attributable to our product gross margin, which benefited from higher revenue and an improvement in supply chain and distribution costs, partially offset by a change in the product mix with higher contribution from Wireless. Our services and subscription gross margin was at 67% in Q2, consistent with both the prior year and prior quarter periods. Q2 operating expenses were $139 million, up from $127 million in the year ago quarter and from $135 million in Q1 '23, reflecting higher R&D investment and sales and marketing expense to support higher revenue growth. Total operating expense as a percentage of revenue was 43.7%, down 1.7 percentage points versus last quarter. All-in-all, our operating margin was 14.9%, the highest level ever achieved, up from 13.1% in the year ago quarter and 12.1% in Q1 '23. This quarter, we enjoyed record free cash flow of $67.5 million, driven by the strong increase in our EBITDA, as well as a reduction in operating working capital due primarily to strong collections. Our cash conversion cycle rose five days sequentially to 24 days. This strong cash flow enabled us to complete $50 million worth of share buybacks, while also reducing our net debt by $14 million to $59.5 million. Now turning to guidance. As we enter the second half, our confidence in the revenue outlook is supported by our product backlog of $542 million, our services and subscription deferred revenue balance of $446 million, as well as a product pipeline that is up double-digits year-over-year. We continue to expect that the reduction in expedite fees and shipping costs, combined with the full impact of our recent pricing actions will lead to a continued progressive recovery in gross margin throughout fiscal year '23. Against this backdrop, we expect for Q3 revenue to be in the range of $315 million to $325 million, gross margin to be in the range of 58% to 60%, operating expenses to be in the range of $140 million to $145 million, and earnings to be in the range of $31.1 million to $38.4 million, or $0.23 to $0.29 per diluted share. We expect to cross the 60% gross margin threshold in Q4. For full fiscal year '23, we expect revenue growth towards the high end of our 10% to 15% outlook, with an operating margin in the mid-teens. With that, I will now turn it over to the operator to begin the question-and-answer session.

Thank you. Our first question comes from Alex Henderson with Needham & Company. Your line is open.

Great. Thank you very much. I knew there had to be somebody behind Remi doing all the work, so welcome to the call, Cristina.

Thank you.

It could have been just for Remi. I knew it had to be somebody else. I was hoping you could talk a little bit more in-depth about your commentary around backlog. I think you had said that you thought it would be up slightly in the December quarter, but obviously on a lower revenue guide. So it sounds like the overall orders were actually a little bit ahead of forecast or ahead of what would have built a little bit of backlog. But I think you'd also said that the March quarter, you would expect it to be flat to down here and then the June quarter down a little bit more. So the comment about the backlog relatively stable implies somewhat of a change in the rate of backlog usage bookings would have to be or orders would have to be a little bit stronger than what you had suggested, given the higher comments. So am I reading that correctly that you're actually a little bit more confident on new orders based off of what you said about the flatness of the backlog going into the June quarter?

Hi, Alex. This is Ed, and Cristina may want to add a comment after me. I think that's accurate. Looking at what happened, as Cristina pointed out, we achieved 16% growth in the first quarter and the first half of last year. In contrast, we saw low-single-digit growth in the first half of this year, much of which was brought into the first quarter. However, our supply chain teams have done an excellent job. We have mentioned the extensive work happening behind the scenes, and we are witnessing an easing of supply. This has led to a quicker release of products. Ultimately, we want to meet our customers' needs, especially regarding the older backlog we have. We've capitalized on that. For the second half of the year, as you know, we anticipate strong demand, and our teams are quite confident in that demand. We are seeing strong booking activity for the latter half of the year, which should help maintain a very stable backlog.

Yeah. Just to be clear, that's product backlog you're talking about, right?

That's correct.

So that also results in an increase in your services backlog as a result of the releases of services on those bookings.

It does. I mean, the other thing that's happened here is that we have and you can see it from a bookings perspective, we talked about universal hardware platforms and those universal hardware platforms typically will have service attach and always subscription attach. So we have a backlog of subscription and services that will be released as we release the product backlog.

My second question is about the inventory situation. There have been significant cost increases over the past year due to supply constraints. Given that your inventory has gone up substantially over the last two years, is there a portion of higher-priced inventory that needs to be addressed before we can fully benefit from the declining costs of universal and lower parts? How will the improved availability help reduce that inventory and enhance cash flow?

At a high level, we have the older inventory being shipped out and newer inventory coming in, which will result in higher costs of goods sold. We are also building up our supply. The inventory levels are linked to an increase in supply, and we expect to receive more supply. I believe there is a connection there, and I will ask Cristina to provide further comments on the overall inventory.

Yeah. So at the inventory, I see is another sign of the improvement in the supply chain. So we were able to get more parts in and we're able to have more finished goods. So I think it will definitely lead to being able to ship more of the backlog. And that's a good sign from the supply chain.

Yeah. The question really is on the cost of goods sold, relative to the inventory that was maybe inflated part costs to it. Is that in inventory and therefore has to be worked through before you get the benefit of falling parts costs as a result of the improved supply chain?

So the benefit that we'll see in our supply chain cost is really related to those incremental expedite fees and higher logistics costs that we've experienced through this challenging supply chain environment. The component costs themselves, we have seen inflation of that and we're not seeing that yet come back down.

I see.

Yeah. And Alex, I think another consideration is that, there are two other key things that happened. So as a percentage of mix, Wireless was up in the quarter. And so, as the Wireless mix goes up, that tends to have a little bit of a drag on gross margin, as you know, campus switching is slightly higher margin in terms of mix. And I think underlying your question is also timing of when we sell out some of the aged inventory that we took orders before some of the price increases, and so that will help us as we move forward. I think that's what you were underlying your question there. As we move forward with newer orders that we have taken from customers, they will reflect more of the price increase and that will create a tailwind for gross margin going forward.

I see. So what are you assuming parts costs are exiting the year above normal? Thanks.

Parts costs are currently about 2 to 3 percentage points higher than the usual percentage of revenue within standard costs of goods sold. We expect this trend to remain steady before gradually decreasing over the next three to four quarters.

Thank you very much.

Thanks, Alex.

Thank you, one moment. We have a question from Eric Martinuzzi with Lake Street Capital. Your line is open.

Yeah. Congrats on the strong quarter. My question has to do with the FY ‘24 language. I want to make sure, I'm understanding this. I think last quarter you talked about FY ‘24 growth in the range of 15% to 17% and this quarter at least in the press release the language is accelerated growth, so wanted to know if that 15% to 17% is still what you're talking about when you say accelerated growth or if it's something different?

Yeah, Eric. I think at this stage of the game, we'll hang on to the long-term CAGR that we put out there as far as 14% to 17%. And so, it's that sort of mid to high teens number and we're very confident of that number going into '24. And the call here given the acceleration of supply and what we've seen here, so the combination of strength of demand that we're forecasting as far as bookings, as well as the supply release we're calling the high end of that 10% to 15% range for the second half of the year, but we do expect it to go up in fiscal '24.

Okay. And then you talked about the health of the pipeline. I was wondering if you could take that down to your geographic levels and talk about USA, EMEA, and APAC pipeline?

It's interesting, Eric. It's strong across the board. We've been receiving a lot of questions about whether we're experiencing any softness, especially with other companies mentioning general macro challenges in tech. We've conducted detailed discussions at the regional level, and interestingly, our teams globally are reporting strength. This is evident in the feedback from leadership and directors, as well as our direct sellers. Regarding our pipeline and funnel analytics, we have excellent visibility and are improving in our ability to forecast numbers, aided by an AI tool we're using. Overall, there's no specific strength or weakness to highlight, except for a recovery in the Asia-Pacific region. Some markets there faced challenges from currency fluctuations and other issues this quarter, but our teams have a plan in place, and with new leadership in those markets, we anticipate a robust recovery in Asia Pacific.

Got it. Thanks for taking my questions.

Thank you. One moment for our next question. Our next question comes from Mike Genovese with Rosenblatt Securities. Your line is open.

Great. Thanks a lot. So there was a lot of positive commentary on the subscription and SaaS revenue growth, but the subscription growth went down to 30 from 60 in the quarter before. So can we just get more color on whether tough comps or timing issues, and what do you expect in the second half of the year on that subscription growth?

Thank you, Mike. Regarding subscription growth, if we examine it quarter-over-quarter and year-over-year, the trends have remained relatively stable within the long-term range we've mentioned, which indicates a 30% to 40% growth in subscriptions. A significant portion of our subscriptions is still in backlog, which influences the timing of their release. As you know, releasing subscriptions is accompanied by a delay in revenue recognition due to accrual accounting. Cristina previously mentioned the 38% growth in accrued subscription revenue and deferred revenue, which we anticipate will roll out as expected. Our long-term model indicates a normalized growth level of 25% to 35%, and the current figure of 33% falls right in the middle. We anticipate this trend to continue. Cristina, do you have anything else to add?

Yeah. It is in line with our guidance, long-term guidance. And so, that is according to expectations and there is a bit of a timing with regards to attached product as well. So some of our subscription bookings are attached to wireless bookings and so, there will be a little bit of fluctuation quarter-to-quarter due to that.

Okay. Thanks. I know it's challenging to make an accurate prediction at this time, but regarding fiscal '24 gross margins compared to fiscal '23 gross margins, I would like to hear your thoughts on how many points of improvement factors like the supply chain and software mix could contribute to the gross margin for '24.

Yeah. I'll take a shot at this Mike, and then open it up for the rest of the team, but we continue to see the step function. We are seeing a slightly higher concentration when we look at mix. Wireless comes in with a lower gross margin, then campus switching and data center switching, certainly. And then because of the strength of product that we're seeing, we wind up with more product mix, which has lower gross margin than our subscription and service revenue. So as a result, that's why we've tempered our outlook for the rest of the year. But we're very confident in crossing over that 60% gross margin number as we head into our fourth quarter of this year and we expect a step function to continue into fiscal '24.

We expect to reach a 60% gross margin in Q4. Throughout fiscal year '23, we've observed a steady improvement in our gross margin, with an increase of approximately 0.5 to 1 percentage point each quarter. We anticipate this trend will persist into fiscal year '24. Additionally, we believe that certain inflated costs related to the supply chain, such as expedited fees and elevated freight costs, will gradually decrease throughout FY '24. Therefore, we forecast an improvement of about 3 to 4 percentage points in gross margin by the end of Q2 in fiscal year '24.

Okay. Thanks so much.

Thank you. One moment for our next question. We have a question from Greg Mesniaeff with West Park Capital. Your line is open.

Thank you, and congratulations on a strong quarter. I have a question regarding R&D. Considering your product mix and the persistent increase in component costs, what initiatives do you have in place to reduce hardware component costs, specifically in switching and campus switching, where components are heavily utilized? Any insights on how you plan to address the higher component costs associated with your products and switches would be appreciated. Thank you.

Yeah. Well, Greg, thanks for the question. I'll lead off. One of the things that I mentioned is that, during the quarter that we qualified an additional 37 component suppliers. And there is a question of our resiliency around availability and supply chain constraints. And then there's also the question around how we drive our gross margin through the qualification of new suppliers and new components and new parts. One of the lessons learned for us is that, we have the ability to enhance this qualification process and the qualification process that was solely focused on availability will be turned towards driving and improving gross margins as we go forward. So it's a good question. I can tell you, it's something that we're very focused on.

Great. Also did you guys give a DSO number for the quarter?

Yeah. Greg that should be in the presentation. And if you look there, we talked about DSO in the 44 day range, it's on Page 14 of our…

Okay. Got it. Thank you.

Thanks, Greg.

Thank you. And our next question comes from Dave Kang with B. Riley. Your line is open.

Thank you. Good morning. Just my first question is on your key verticals, I assume there is still positive. Any verticals that is turning negative?

Hi, Dave. One area we’ve noticed some softness is in the service provider segment, which is a small part of our business. You might have heard similar observations in the broader marketplace. While we have specific service provider customers, capital spending programs from some of the larger end-users appear to have slowed down a bit this quarter. However, as we look forward to the second half of the year, we are seeing healthier demand from our service provider team. That’s the key point to note; overall, I would describe our performance as relatively strong. Additionally, we are positioned to take market share as a smaller player among larger competitors. We will soon announce some significant wins in various verticals, reflecting a meaningful shift in market share that goes beyond the broader macro trends. Generally, we’re seeing stability across most verticals, apart from the softness in service provider, and with our focused applications, we anticipate a strengthening compared to the first half of the year.

And speaking of service providers on Ericsson, they talked about the 5G market a little bit choppy this year, especially in the first half. Do you still expect to achieve your target of $100 million in 5G, despite Ericsson's comments?

We do. We still see strength. We don't think 5G is going away. We think there is a pause with some of the buyers, as they're tightening their budget, but the long-term opportunity is a resounding, yes. The service providers are going to upgrade their infrastructure. And fortunately, we're in a very strong position as part of that infrastructure upgrade. And so, we think that's the case. The other thing is that, they are more with Ericsson, they have more service providers in the queue. So in terms of the number of proof-of-concepts and then proof-of-concepts turning into a meaningful go-live launches, that funnel continues to build nicely.

And any other potential customers in the pipeline that you can talk about or is it still the North America service provider and the European equipment vendor?

Those are the two main customers, and I believe there are more opportunities with both. In the service provider sector, we have a direct sales approach. From a traditional IT standpoint, we collaborate as part of their solution as an OEM. Now, we also see chances to sell through and become their enterprise partner. These are the three strategies we are using to tackle the service provider market, and we see significant growth potential in this space.

And my last question is, I may have missed it, but did you give out the backlog composition in the mix?

I don't believe we did give the composition of backlog mix. When you're saying mix, you're referring to?

Wired and Wireless.

We don't break it down, Dave.

I think, I would say that we would expect it to be fairly consistent with the overall business mix that we report.

Hey. And Dave, I would just add that, you know, we did say in our prepared remarks that the backlog has a good contribution from universal platform products. And so, those are the newer products that we have come out to market with. So we did talk about that.

Got it. Thank you.

Thank you. One moment. Our next question comes from Christian Schwab with Craig-Hallum. Your line is open.

Hey, guys. This is Tyler on behalf of Christian. Thanks for letting us ask a question. So I didn't hear and I was wondering if you could give any update, I think you said last quarter that you expected that your backlog would take multiple years to return to normalized levels. And it probably wouldn't be back to $50 million to $100 million type normalized level until fiscal '26. I guess, any update or indication of that?

We maintain our outlook and expect the backlog to return to normal by the last quarter of fiscal '25, remaining stable as we enter '26. This projection is based on strong demand and ongoing bookings, along with our supply chain forecasts regarding the release of backlog.

Perfect. That's great. That's all for us. Thanks, guys.

Okay.

Thank you. And it looks like we have a follow-up. One moment. From Alex Henderson with Needham & Company. Your line is open.

Great. Thanks. So I wanted to ask a question around the realized pricing and discounting. There was a lot of discussion about very steep price hikes over the last 18 months, pretty much out of everybody in the category as components were going up. But the realization of those prices, even as supply is starting to improve seems a little less than what we would have expected. And it sounds like there's probably a little bit more discounting going on as the economy is weakened, particularly out of your competitors. So can you talk a bit about what you're seeing in the pricing arena and how much of the price benefits that you've announced or increases you've announced are now being discounted out?

We're always experiencing this situation where a price increase occurs, and then part of that increase gets discounted. It's a mix of art and science to predict and analyze this process. The current supply chain situation has made things more complex. As we take orders and add them to our backlog, we have orders from different time periods, each with varying price levels.

Yeah.

So one of the things that we have done last quarter, and that we're looking to do this quarter is release a much older backlog, and that older backlog will not have as many of the pricing moves, if you will, or the price increases in the ASP. So that's part of kind of what we have to balance. Our view is that the margins are going to come. And we fully expect to see that the step function right now, given the mix issues that we talked about in the quarter, and then the March quarter, we see it stepping into the June quarter before we cross over 60%.

I get it on the margin side, then you're pretty clear on your guidance there. I guess, my question really is how much of the revenue growth is a function of price versus volume, within the both the December quarter and back half outlook?

We would estimate low to mid-single digit growth for that pricing number.

Great.

The other comment that I'd make Alex is that the largest competitor in the industry has raised price. And fortunately for us, it creates an umbrella and gives us the flexibility to consider potential pricing moves as well.

How much do you think Cisco's prices are up?

We think in the high-single digit, low-double digit range.

All right. Any thoughts on the trajectory of interest income and tax lines for the next couple of quarters? Obviously, your cash position is improving, your debt is coming down. Makes a little hard for us to calculate that number. What is the March expectation for interest and other income? And for that matter, any sense of the June quarter would be great as well.

Cristina, you jump in on that one.

Yes. Thank you. So we expect interest expense to remain fairly stable as we do bring down our debt. So we don't see a large increase in that. And we're basically affecting our non-GAAP results with roughly an 18% to 19% effective tax rate.

So the net of the numbers, because we don't see the components of it. The net of the numbers, because we don't see the components of it. The net and that number on the interest and other income line should be continuing at around $2.9 million expense? Is that what you're saying?

Should be higher than that for both interest and other income.

That's what you posted in the interest line?

Yes. That's right. Let's call it $3, roughly $3 million to $3.5 million something in that range.

And is there a reason why that's not coming down as cash balances are getting better rates and the…

Rates are increasing as the balance goes down.

The floating rate on the debt is increasing and is offsetting the floating rate on the cash balances.

Right.

Okay. I got it. And the taxes you already gave me. Thanks.

Alex, the other thing I would just mention is that the share count, you'll see a drop in share count based on the share repurchases during the second quarter.

Great. Thank you. Actually, before I get off of one last question that what are you seeing in terms of employee retention and employee wage rates inflation?

Well, this is the quarter where we have, from a benefits perspective and from a merit increase, this is when that gets whizzled into our numbers. But you're familiar with that, because that's always the March quarter. We are in a really strong position and really fortunate we have first of all, our turnover is very low, the lowest among the tech industry peers. We do a lot of comparison, evaluation, and analysis and our voluntary turnover is incredibly low. And along with that we are in the market and we're hiring, because we're investing in growth, because we have this unique growth opportunity over the next several years, and we have a lot of different growth opportunities that we can invest in. So Extreme has been hiring and our turnover has been low.

Great. Thank you.

Yeah.

I'm showing no other questions. I'd like to turn the call back over to management for closing remarks.

Thank you. I'd like to thank everybody for participating in the call today. Obviously, it's a record quarter for Extreme, record revenue, record cash flow. We just missed that 15% operating income number and the momentum as it relates to our bookings and our customer growth continues to be very strong. So we have a lot of different people listening in on the call, so shout out to all the Extreme employees, our partner community that's helping us drive growth, our end users out there and of course, all the investors for participating on the call today. We would encourage everyone to participate in the upcoming investor conferences over the next couple of months. And as I said before, there's never been a better time to be at Extreme, either employee, partner, customer, investor. And another welcome to Cristina, for joining us today on the call and stepping into her new role. Thanks, everybody. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.