Extreme Networks, Inc. (EXTR) Earnings Call Transcript & Summary

Welcome, everyone, to the 2021 Extreme Networks Investor Day. I'm Stan Kovler, Vice President of Corporate Strategy, Investor Relations. And we have a great lineup for you today. We're thrilled to share with you our vision, talk to you about our growth prospects and really explain how we are the industry's only pure-play cloud networking provider. We're going to speak to you for about 1 hour and 45 minutes today, and then go into questions and answers. And before I begin, I do have to remind you of some forward-looking statements. So during today's call, well, our discussion may make include some forward-looking statements, and as you know, they involve risks and uncertainties. For additional information, please take a look at our 10-K, 10-Q and 8-K filings on our website. If you follow along with slides, if you're on audio only, we're going to post them on our website afterwards. And we encourage you to take a look at our web page that we've set up for the Investor Day. There are some additional assets there, some videos about our products and solutions and some other testimonials as well. Let's get to the agenda. So presenting today, we have our CEO, Ed Meyercord. And Ed is going to talk to you about how we are pivoting towards growth and investing in innovation. That's really the stage of where we are as a company. And then following that, our Chief Operating Officer, Norman Rice, will discuss conversation with Major League Baseball. We have Truman Boyes with us from Major League Baseball to talk about what we're doing in our recent win that we announced last week. After that, our Chief Technology and Product Officer, Nabil Bukhari, is going to talk to you about what we call the infinite enterprise and about some of our products and solutions that we're building and bringing to market such as the universal platform and how we differentiate with cloud, fabric and universal. And then we'll take a short break and come back with our Chief Administrative and Sustainability Officer, Katy Motiey, talking to you about our sustainability efforts, our corporate social responsibility mission and really what we're all about in that perspective. Then we'll have Joe Vitalone, our Chief Revenue Officer; and Wes Durow, our Chief Marketing Officer, tell you about our go-to-market efforts, what we're doing to build a channel engine. And at the tail end of that, we'll get a partner testimonial from Ed Walton, who is the CEO of STEP CG, one of Extreme's largest North American partners here. Once that's done, we'll conclude with Rémi Thomas, our CFO, talking to you about our margin profile, growth prospects and really all those things that you want to hear. And after Rémi, we will go straight into Q&A. So without further ado, let me introduce the CEO of Extreme Networks, Ed Meyercord. Ed, take it away.

Thank you, Stan, and thank you, everybody, for joining us today. We have so much going on at Extreme, and we're really excited to share this with you outside the normal earnings call track and to let you see the players at Extreme and to understand to have a deeper dive as to what's going on. We are truly a different company than we were a year ago, and it's hard to believe just what has happened over the course of last year. I know everyone here is probably feeling the same way. In our case, it was about this time last year that we found out that there was a virus in China and it was spreading rapidly. And our first concern was are we going to be able to get product out of the country, and it was a big concern. And then immediately, we saw people tapping on the brakes as far as demand, opportunities that we knew were real, were just being pushed out and pushed out further in time. So these things were happening. We wanted to be -- take all the precautions we could. We drew down our revolver. We had to make tough decisions. We accelerated the reorganization of our product engineering group, our go-to-market teams in the field. We had to reduce headcount. We took salary reductions. But then from there, it's been pretty amazing. We have come out. We're now 3 quarters in a row, top line growth, gross margin expansion, earnings expansion. We have record cash flow generation in December. And we paid off our revolver, and it looks like we'll be covenant-compliant here in the March quarter. So it is really -- we've come a long way. What I'm most excited about is the technology differentiation, our market position, the trends that are happening in the industry and why we're poised for growth, including some new growth vectors. So looking forward to jumping in with everybody here. Let's just take a high level and take a step back and look at kind of what's going on and where we are right now. Hard to believe, it's 25 years that Extreme has been in business. And I think as we go into this year, we're going to be breaking records for the company and its history. When we think about the environment and what's going on, all of us are working from home. The enterprise has become more and more distributed. And then when we think about what's going on with COVID, it's only accelerated people working from home and then this new normal that is -- has fundamental impacts on networking and on our industry. Fortunately, our time could not be better with our cloud investment because we have the second largest cloud in the industry but the industry-leading cloud. And really, the cloud is the platform that enables distributed networking. And we'll talk about enterprise and how we see the future of the enterprise and why we think that's so important. Again, third year in a row, Gartner Magic Quadrant, that is a big deal for us. We think about how that plays out in the market and how that matters. Finally, corporate social responsibility, a lot of things happening out in the world driving this focus, and you'll be happy to know Extreme is a leader on this front. We've got metrics to prove what we're doing. The energy inside the company for things like Extreme Academy, standing up, our teams on the D&I front, the progress we're making, the energy it's generating is great. So we're turning the corner into '21 as we go into our 25th year in a really strong position with a lot of things to look forward to. If I take a longer-range perspective, we started off with an acquisition strategy to get critical mass. And that was really important to us. And then Aerohive was really about getting world-class cloud. We got the industry's leading cloud with that acquisition. The good news for us, as we think about all the work we've done, all the money that we poured into the consolidation of assets, I mean there's the physical integration of all of our systems, it's all one Extreme. How do we bring together our product and technology roadmaps which can be very complicated? Now we have the universal hardware platforms and then how do we bring everything to cloud, and we're ahead of schedule. So at this point now we're a fundamentally different place where we're looking at, hey, we can now invest in innovation. We can invest in growth. And this is an exciting time for people inside of Extreme, getting energized behind that as well as our partner community and as well as our customers. If I take a look at the major trends that are affecting our industry and networking as we look forward, obviously, cloud. I talked about it earlier, but this is the last part of the IT infrastructure to move to cloud. And this is going to simplify networking and reduce complexity, which is a big deal. It is going to create new insights and new opportunities to reduce cost, and it's also going to provide new services for cloud. So this is a big one for us. Data. In the cloud age, data is the new currency and now we have the ability for the first time to untap data from the network, and this becomes strategic. The network becomes more strategically important if it is the connected tissue of all the applications and all the users and then what are the insights we can gain and then how can we change business outcomes. This is a big focus. And then mobility, this is what enables it all. As we look at the distributed enterprise, that edge is moving out to become more the mobile edge. And I'll hit on that. This is what we're calling the new edge. Instead of the new edge being a corporate -- remote corporate office or a remote branch office, the edge is now going to be the individual and the individual's device, and that could be at a home. It could be in an office. It could be on an iPad. It could be on a laptop. It doesn't matter where you are. The network is going to connect to you. And now the enterprise, instead of the consumer being responsible for that connection, the enterprise is going to take ownership of the user experience in the distributed environment. And so this is what we mean when we talk about the infinite enterprise. We talk about kind of what happens as it expands. In the middle of this is cloud because you can manage this very, very easily from a cloud platform, and you can't manage it from the traditional on-prem platforms. So this is why we're excited about the cloud and the opportunity it brings. And this is our vision of where the enterprise is going. And let me just give you a few examples. We're really proud of our partnership with Aldine just outside of Houston, one of the largest independent school districts in Texas. And they're a role model, not only for Texas, but for the whole United States, really, for the world, for that matter, for all the great things that they're doing, bridging the digital divide, investing in technology and their digital transformation and the acceleration of that. They had a 3-year plan in Chromebooks for lower school and then bring iPads to middle school and then laptops for upper school. This is for 70,000 students, and they took a 3-year project and they smushed it into 10 months, and they executed on that. And then with people going home from COVID, they still had to provide access to that school network. So they put up 1,000 APs around all their school patients to bring free Internet access, not only to their students and their families, but communities. They are moving everything to the cloud, a big multimillion-dollar customer, and we consider them a partner. In South Korea, this is a high-technology company, 75% market share in search in that market. When they came to us, they said we want a partner who can move with us and innovate with us and that's what they're doing. And so they're doing this with our automated campus technology in the data center. This is an example where Extreme is innovating, and we're innovating at the highest level with technology companies globally. Here, I would look at -- this is a great example of a distributed retail branch system, where Extreme is providing the very first cloud as a service in the industry. PNC is a growing bank. They are taking share, and they're investing in their infrastructure, and they chose ExtremeCloud IQ. Our cloud certification and the fact that we have security with ISO and our competitors don't have it, that's a big factor. That becomes a factor in enterprise selling. And then also it's just the fact that we can provide choice. We could give them their own cloud instance. They put it in AWS, but it's their own instance of ExtremeCloud IQ that they wanted to have. That cloud choice is important to a lot of enterprise customers, an example of what we were able to deliver to PNC to win that multimillion-dollar customer. And then in healthcare, I think we all know what's been going on with our healthcare system in the midst of the COVID pandemic. Here, we're seeing more and more care being delivered to the home. Another example when we talk about the acceleration of digital transformation, it's happening here. Hospitals and healthcare systems have to stand up remote medical care. And how do they do that? And how do they marry clinicians with patients, and then connect them with all the data in a securer way? ExtremeCloud IQ. So this is another example of how we're innovating and working with our customers in the healthcare arena and another customer win. If I take a step back for a moment and we go back to the market that we're playing in, I mentioned enterprise, and I've been talking about those enterprise customers, and then there's 5G. As we look at the market for enterprise, we're peeling away markets where we don't really compete effectively, China being an example. We're not really competing in those big cloud data centers. So we remove that to get down to our $15 billion TAM. The nice thing about the -- it's still a big market but within that is our cloud segment. And cloud is expected to go from $2.7 billion a year to over $7 billion a year by calendar 2023. And Extreme has the highest quality cloud, the largest cloud capable of ML and AI. And here we are in the highest growth segment of this industry that's growing in general. So we like our position as it relates to enterprise. On the 5G side, we have very specific use cases that are designed towards telecom infrastructure and supporting service providers, and that's what these opportunities are. You're going to hear from Nabil, and you'll hear him talk about that. We see these opportunities gaining traction as we move into our fiscal '22 year. And I would say some of the largest growth opportunities I've seen since I've been at Extreme, and this will ramp quickly in what we see as $50 million to $100 million a year. As we look at the cloud and the enterprise side, we have 1.5 million devices being managed from ExtremeCloud IQ. And from this, we have a unique opportunity to go to our existing customer base where we have over 5 million devices to go after. So we can convert existing customers and move them into the cloud. That's one of our big initiatives. As we move people in the cloud, we get those cloud subscriptions. And then we can go after third-party networking devices. Many of you may be familiar with our Extreme Management Center, where we have the capability to manage third-party networking devices or switches, et cetera. We are bringing that into the cloud to make it easier for people to make the move to Extreme and to our cloud. Once we get people to our cloud, they become very sticky. And then IoT, that's even bigger with tens of billions of devices. We're building a multi-domain cloud. And you'll be hearing from Nabil, and we'll be talking about the fact that we can manage non-Extreme devices outside of the networking ecosystem from ExtremeCloud. And this is something that we're very excited about and we think brings enhanced and new revenue opportunities, recurring revenue opportunities. As we drill down into 5G, I think people are familiar with 5G and what it brings. We're talking about 3 to 5x the speed, and we're talking about 2 to 3x the data, and we're talking about new applications in terms of fixed wireless. What does it mean for us? From an enterprise strategy, anytime you have higher speeds and more data, it means you need to upgrade, refresh and build networking, that's good for us. So that's good for the health of the overall industry. And then what does it mean for the infinite enterprise? It means that we'll be riding 5G as part of connecting to that infinite enterprise at the edge, that individual device. And we have specific investments that we're targeting for that, that Nabil will talk about. On the infrastructure side, we see a large majority of the infrastructure investment in 5G moving -- and overall radio access networks moving to 5G, and that's what we're highlighting here. We're at the early stages of a long-term opportunity. So more exciting news for us because it's a new growth vector. And then finally, wrapping up. As we think about the pivot to growth, moving into double-digit growth as we head into the second half of our fiscal '21, it's really being driven by the changes that we're making on the inside of Extreme. You're going to hear from Joe Vitalone. You'll hear from Wes Durow in terms of how we've reorganized sales and the sales motions there, in terms of what we've done with marketing. We have a brand-new state-of-the-art marketing platform that's being rolled out. And then Channel Self-Serve, making it easier and effortless to work with Extreme if you're a partner or a customer of Extreme. I've talked about the opportunities that we have, and the fact that we're taking share, we're taking share in cloud because of the competitive differentiation. If you're an enterprise customer, you have to be thinking about cloud, and then you have to be thinking about choices and who do I consider for cloud. And now you have to consider Extreme. So we're seeing more of that. We're seeing our funnel grow, and we're also converting on those. And then we have these new longer-term growth vectors and growth opportunities, Nabil will touch on these, where we're investing now. Instead of consolidating all these assets, we're investing in innovation and growth. And that also drives the conversation at up levels extremes, and it creates new opportunities for us. So with that, I thank you. I appreciate all of you giving your time to us at Extreme. This is where -- I'm obviously excited about it. And I think you'll feel that from our team as we go through it. And I look forward to having the opportunity to answer questions in Q&A and then see you in the breakouts. And Stan, I'll send it back to you. Thanks.

Thank you, Ed, for that great overview of what's changed at Extreme and how we're well positioned to take market share over the next several years. Let's go over to Norman Rice and his discussion with Major League Baseball. Take it away, Norman.

Thanks, Stan. I'm so excited. I'm here with Truman Boyes, Senior Vice President Infrastructure and Technology for Major League Baseball. Truman, welcome, and thank you for being here.

Thanks, Norman. Happy to be here. Thanks for the invite.

All right. So tell us a little bit about your role at Major League Baseball.

So I run all the technology and infrastructure for MLB, which is a broad portfolio of all the technologies at the ballparks. That's everything from all our high frame rate cameras and all of the replay technologies, through our cloud and delivery to the customers. So it's really from the beginning of the ballpark to the fan experience.

Yes. And what a strange year you've been through? No fans, fans, bubble for the playoffs, half season, everything going on. How did you deal with that? What were some of the big things you noticed?

Well, I think it was quite a somber year for many of us, but there was definitely some optimism. We were able to get through the season. We had just launched our flagship offices in New York City only to have all of our employees sent home. So we had to scramble trying to figure out how we would get all of our services launched, how we'd get the ballparks ready. And we ended up having most of the employees within our technology team basically running broadcast operations and delivery of all of our services remotely out of their homes. So we are so happy that we're able to launch the season, a shorter season than usual but definitely a successful one.

Great. And one thing that a lot of people want to know is what's the relationship between 5G and Wi-Fi?

I think they're quite symbiotic. So the technologies themselves have a common goal, which is really to have high bit rate services available in a ubiquitous nature. So the intention here is to have all of our fans have great connectivity in our parks, in our offices. And so both of these technologies together are offering similar services. So we are looking at 5G as being -- definitely continuing to grow throughout the next few years. And Wi-Fi 6 is dominating within our parks. So I think, together, they offer a seamless experience from a fan perspective so that they're able to leverage both.

Yes. Last week, we announced a partnership between Extreme and Major League Baseball. Tell us why did you select Extreme to partner with.

Selections. We spent a lot of time looking at the company itself. We take a look at the technology. And we're really happy to see what Extreme has done for the NFL and some of their other customers. And then just looking at the technology itself within our ballparks, we knew that we were going to need to partner with the best in class. And with that, it really comes down to where is the technology going beyond just what it delivers today and where we see it going towards cloud. Having a mobile experience and having continued innovation for insights in wireless, continuing to move into the cloud is definitely of interest to us. We want to know about the experience and know that the quality is substantial when we're delivering this on such a large scale.

Great. Thank you. And just in closing, Truman, what are your World Series predictions?

I think it's going to be a fantastic season. I think we're going to see 30 teams playing well and getting to the playoffs. And from there as a New Yorker, I'm hoping that I can see some local cheer, but I -- look, I support everyone, and I hope they have a great season. How about you, Norman?

Yes. I'd go with either the Red Sox or my hometown, the Detroit Tigers. I've been out east so long, can't help but love the Red Sox as well. Either way, it's a win. We're so excited to be partnered with Major League Baseball. Thank you, and thanks for your time, Truman. Take care.

Thank you, Norman. That was great. We truly have a great partnership with Major League Baseball. And it's just great to hear how customers are deploying Extreme's differentiated wireless and wireless analytics. Let's go over to Nabil to discuss our technology vision.

Thank you, Stan, and welcome, everybody. I'm glad you could join us, and I hope you're staying safe and staying warm. As you can see, I wear 2 hats here at the company. I'm the Chief Product Officer as well as the CTO. Today, I will be talking to you as the CTO. But part of my team, they will be adding a lot of product and technology-related details and video vignettes that we will post on the Investor Day website, and I encourage you to go look at that later after this presentation. So earlier today, you heard Ed, and Ed laid out the direction of the company. He talked about the massive opportunity that lies in front of us, and he also talked about a very crucial pivot, a pivot for the company towards innovation. So in the next 20-odd minutes, I'm going to lay out the vision for that innovation. I'm going to talk about what do we believe is the future of technology, what do we believe is the future of enterprises, the future of businesses and how are we investing to make sure that, that future happens. How are we investing in technologies that enable that future? And how are we investing that puts us in a position to realize the opportunity that Ed talked about? Now we all know that we are living in a unique world. You're living in a world that is fast changing. We have all been impacted by the pandemic in one way or another. It has changed the way we do everything. It has actually changed the behavior of the -- and the which -- the way we work, the way we go to school, the way we shop, the way we receive our healthcare services, pretty much every aspect of that life. Now businesses who deal with these individuals must also change because now they have to provide for this new behavior of the individual. We know we are not going back to the world the way it used to be. But we also don't think that the whole world is going to start working from home. So yes, they're not all going to go back to the offices, but they're not all going to stay in the world. So we are heading towards a world that is going to be hybrid in nature. And businesses have to adapt to that. And we know every time businesses have to transform, that means they have to select the right technology. They have to deploy the right technology, and they have to employ the right technology. Now what that means for technology vendors like ourselves, well, it provides an opportunity. In this new world, the advantages of incumbency and size, they have been mostly neutralized. So a company like Extreme, which is at the forefront of these technologies is in a unique position to lead this change. So what is this change? Before we talk about how enterprises have to evolve, let's just quickly take a look at how they are today. We already live in a pretty connected world. We can get online, we can do a lot of different things. But all of this connectivity, the businesses and pretty much our entire life is centered around this concept of centers. It is built around centers, now there's centers of population, whether this is big, huge campuses where all the workers come in, whether they are schools and universities or big hospitals, we like to come to the centers. And these centers provide you an experience. The farther away you are from the center, the experience changes. This is the fundamental nature in which enterprises work, and that is how the networks that enable these enterprises are also developed. But as we move forward, that fundamental nature is going to change, is changing because people are working from home. People are getting their medical services from home. People are getting educated from home. But as the pandemic gets settled down or we get out of it, people are going to want to be in a hybrid world, a world where they can do all of these things from anywhere in the world, and we call that the infinite enterprise. Enterprises must change to infinite enterprise. And what are the characteristics of infinite enterprise? There are 3 main characteristics: number one, infinitely distributed connectivity, a connectivity that is available everywhere so you can take the enterprise to the user; number two, an infinitely scalable cloud, a cloud that scales in every aspect, which enables this distributed enterprise; and but most importantly, that this enterprise must maniacally be focused on an effortless experience for their consumers. You heard Ed talk earlier about 3 mega trends: the mobility, the cloud and the data. They also happen to be the building blocks of this infinite enterprise. So how are we leading in each one of these trends? Let's start from mobility. I know when we talk about mobility, the first thing people think about is your cellular phone, but mobility is more than that. Mobility is freedom. Mobility is the state of being where people can be anywhere and they can do anything from anywhere. And how do we enable that? We enable that through infinitely distributed connectivity, but this is not just any connectivity. This is not the free Wi-Fi in your coffee shop where you don't really know who is listening in. This is enterprise-grade trust, enterprise-grade technology, enterprise-grade assurance but matched with a consumer-centric experience available anywhere and everywhere. Yes, there are a lot of connecting technologies that will be part of it from wired to wireless and LTE and 5G and cable and so many other technologies. But what are the things that really come together to produce this infinitely distributed connectivity? There are 3 things, 3 kind of technologies that are users for this. First and foremost, you have to have an infinitely scalable cloud because how are you going to deploy? How are you going to onboard? How are you going to manage, operate, observe and troubleshoot and assure this connectivity if you do not have a cloud that can scale and provide all of those technologies? And that is why we have been investing in ExtremeCloud IQ, which is the fastest-growing cloud in our industry at this point in time. Number two, fabric. All of this connectivity, it has to work together. If every device works separately, independently as its own, then it is going to be chaos. It requires a fabric that spans across wired, wireless and branch technologies. And that is why Extreme has the world's most deployed fabric, thousands and thousands of users out there who use this fabric, and we are bringing our wireless technologies, our cloud technologies and our branch technologies into that fabric. And lastly, all of this has to be built on some infrastructure. And that is why late last year, we introduced the universal infrastructure, the universal platforms. And in a nutshell, what is a universal platform? It is a platform that allows you to use that investment in whatever shape or form you want, single license, single platform that's been used in multiple different use cases. Why? Because in this fast-changing world, one of the big risk is the risk of making the wrong choice, the risk of obsolescence, and universal platform reduces that risk. So these 3 technologies are the one that come together to enable this infinitely distributed connectivity. And Extreme has already been investing in it, and we will continue to invest in there. I said whenever we talk about mobility, we think about LTE and 5G. So let's talk about 5G. 5G is the big spend cycle. We all know it is one of the biggest infrastructure rollouts that we have seen in the past many decades, and it's just getting started. In a nutshell, on the infrastructure side, 5G is essentially virtualization of the mobile networks. And what it means is it requires network function virtualization infrastructure as well as cloud-native infrastructure and not only just infrastructure robust networking in there, but also the management part of that. And those are technologies that we have been investing in for the last couple of years with our key partners, and we will play our role in this big spend cycle in the infrastructure rollout that is happening, and we're just getting started. Now of course, 5G will enable a lot of use cases for enterprises later down the road, but those use cases are a little bit farther out in time. We are just at the start of the spend cycle. So the next part, cloud. And of course, we are the cloud experts. I don't think I need to talk about why cloud at this point. I don't think I need to talk about that cloud brings simplicity and cloud brings scale. Those are things that are well known, well understood, but it is time for cloud to move into the next phase, which is the phase of flexibility and flexibility in multiple dimensions. What do I mean by that? Multi-cloud, a cloud that is built not on just one infrastructure provider but all of the major ones. We are the only cloud out there that runs on AWS, GCP and Azure simultaneously around the globe. Why is that important? First, of course, it provides you multiple, multiple layers of reliability but it also allows you data sovereignty. It also allows you to choose based on your corporate reasons or any other reason that you have, choice and flexibility. Multi-domain. Multi-domain is the age-old promise of having everything in one pane of glass. And yes, nobody is there, but multi-domain starts bringing you towards that. You heard talk about the massive opportunity in front of Ex IQ, where not only our own networking devices, but other manufacturers' networking devices can be managed and can be seen in Ex IQ, but that's just the start. The multi-domain really starts happening when we have technologies from return to work safely sensors all the way to handhelds, and keep an eye on that. That is something that we'll be talking about extensively because ExtremeCloud IQ has the promise of bringing all of these different domains of technologies and devices under one pane, and we're just getting started on that. Multi-duration. Data is of no use if you can't hold it, but different people want to hold it for different times of length. So multiple durations from 90 days to unlimited, that is something that we already introduced last year. And then most importantly, multi-deployment. We all know that because of this pandemic, people are moving towards cloud. There is a higher propensity but not all people are at the same place. They are all going to move to the cloud. Be it individuals, be it enterprises, be it schools, universities, state and local governments, they're all going to move there at their pace in their own way, and providing that multi-deployment is really critical. We're already the only cloud in the industry that allows you public, private and local but we are taking it a step forward. We are bringing the cloud to you wherever you are. ExtremeCloud edge, industry's first cloud that is ISO-certified and can actually run directly on edge devices wherever they are, bringing that simplicity, that scalability, that flexibility straight to you. And the difference here is this is available as a service, a turnkey offering. So no, you do not have to go and set up an environment and hire people or retrain your people to now learn the cloud languages. All of that is done for you through our cloud ops. This is our first as-a-service offering. It is launching later next quarter. And at the very start, at the time of the launch, it will run all of our ExtremeCloud IQ applications directly on ExtremeCloud edge and, later down the road, any application that is available in the marketplace. That is the future of cloud. That is the future of flexibility. Next one, data. We all know data is the new currency. Data is something that goes hand-in-hand with cloud but not all data is created equal and not all data is treated equal. We all know that enterprises and businesses need to take advantage of this data. This data can provide you insights, valuable insights that can increase your efficiency or reduce your risk or bring in new revenue. But before you can do that, you need to treat this data properly. And what does that mean? That means data duration, as I said, what is the use of data if you cannot hold it. Unlimited data duration, we introduced that last year. Data durability, well, what's the use of that data, if that data is corrupted or not available when you need it? The multi-cloud availability in ExtremeCloud IQ that makes sure no matter where you are, your data is available to you with that data sovereignty and with your corporate strategy behind it, whatever you need, it is available for you. And then data diversity. Data from networking devices is awesome. It's really cool. But how about data from all networking devices? How about data from the handhelds? How about the data from IoT sensors? How about data from other devices? When you can bring them together, that data diversity enhances the useful of that data. We are leading in each and every front of this data framework. But then data unused is data wasted. So what is the point of having all of this data and not being able to use it? So how do you use it? Yes, you have insights. And yes, you have pretty graphs, and yes, you have a lot of ML and AI, which is within the network itself or within ExtremeCloud IQ itself, but you should be able to exchange data between ecosystems. And that exchange of data between ecosystems has to be driven by open API, not just any API, but open API, high speed, near real-time APIs that can exchange data bidirectionally between ecosystems. You also need to have explainable AI. I know AI and ML is a big market and term right now, and everybody is talking about it. But look, an AI that you cannot figure out, an AI that cannot describe to you why it is giving you the insight it is giving to you, is actually more trouble than use. Plus trust gap, people are still not used to letting AIs run their network. Why? Because they still don't trust it. So how do you bring in an AI that, number one, is explainable; and number two, people can actually trust it? That is by bringing artificial intelligence and human knowledge together, and that is our co-pilot program, which has been running out there in a beta with our customers for over 9 months, where we use AI, explainable AI to find patterns. And when we find them, we work with our customers to make sure that they actually are true, and that, in turn, allows us to update our algorithms. This is an AI that's actually usable and actually reduces cost. And then ISO certifications. We are the only networking cloud provider out there that doesn't have one, not 2, but 3 ISO certifications and more to come. Why? Because people don't use data or people don't use cloud if they don't trust it. So the use of data should reduce complexity, should reduce cost and reduce risk, all the areas in which Extreme is leading this transformation. A lot about technology, a lot about infinitely distributed connectivity and this cloud and data, but we should never lose the main vision, and the main vision is that this is all for experience. This is all for the experience of the consumer, whoever that consumer is. Those consumers could be the people that work in your company. It could be the people that you sell to. It could be the people who are selling it. It could be your partners. It could be individuals out there in various capacities, whoever the consumer is, a simple, intuitive and consistent experience for them across the enterprise for users, buyers, sellers and partners. And the key part here is we have to look at the enterprise as a whole. I know a lot of our friends and other companies, they think about enterprises in terms of data centers and campuses and WANs and branches. We believe that as we move into the world of infinite enterprise, the enterprise must work as a whole. The infinitely distributed connectivity, it goes wherever the user goes. It must have the intelligence from onboarding management, observability and assurance from one place, a cloud that scales with it, and it must provide an experience that is consistent no matter where in that enterprise network you are, and that is the vision of infinite enterprise. And that is the vision that we, at Extreme, are investing for. This is the vision that is enabled by technologies like cloud, like data, like mobility, in which we are leading and we will continue to lead. It's a bold vision, but we are on our way. I encourage you to go and watch some of those video vignettes that I talked about earlier, which will dive a little bit deeper into the product. And also, when we post this presentation up on the Investor Day website, we'll add a little bit more product-level detail in there. A world that is changing fast, a world where the individual is changing, the businesses are changing, and that allows Extreme to leapfrog and lead this change. I thank you for joining us today, and I hope you find this interesting and useful, and there's a lot more content for the rest of the day. Stay safe, stay warm. Thank you very much.

Thank you, Nabil. Wow. There's some really exciting things happening on the technology front at Extreme. We have an unmatched combination of cloud capabilities plus fabric, universal platform. It's so simple yet so differentiated. Okay, let's take a short break and then hear from Katy Motiey to discuss our CSR efforts. [Break]

Welcome back, everyone. We hope you had a great break. And now let's turn it over to Katy Motiey, our Chief Administrative and Sustainability Officer, to talk to you about our corporate social responsibility efforts and sustainability at Extreme.

Hi, my name is Katy Motiey. I'm the Chief Administrative and Sustainability Officer as well as the Corporate Secretary to the Board of Directors here at Extreme. I'm now also leading an incredible group of employees who are working all around the globe on a number of corporate social responsibility initiatives. 2020 was a challenging year given COVID-19 as well as the Black Lives Matter movement, which was a wake-up call for everyone around the globe, including at Extreme. We decided to include inclusion in one of our core values. We also rolled out our Corporate Social Responsibility Council as well as publishing our first Corporate Social Responsibility Report, which is on our website. Here, we talk about the work of 5 pillars, D&I, philanthropy, environmental, data privacy, business ethics. And for each of them, we have rolled out 3- to 5-year ambitious goals that we are keeping track of and reporting to our Board of Directors regularly. Through the work of a number of ERG groups, we have 6 ERG groups now, you'd be so proud to know the oldest one is our female -- our Women's Council, which has been in place since January of 2018. This group has increased our female population by an incredible 18% to 24%. We're also really focused on improving our gender -- our racial diversity. And we are, at the same time, very mindful of making sure that we are being inclusive and that we have pay equity for all of these groups. We're focused on our environmental and sustainability efforts. We are keeping track and holding our suppliers accountable by ensuring that they are -- they're reducing their greenhouse gas emissions. We're also focused on ourselves and making sure that we are reducing our corporate -- our carbon footprint, excuse me, as well as reducing our operating expenses. These are through initiatives like moving more and more of our freight from air to sea. We've put in place microgrids in our San Jose office through a bloom, and we're really actively focusing right now on our return to work -- our return to office, excuse me, plan, post pandemic. Our ExtremeCloud IQ, which you've heard a lot about on this Investor Day, has received 3 ISO certifications by a third party, which basically means that there's over 100 auditable controls to ensure the privacy and security of customer data as more and more of our customers are moving from on-prem to the cloud. Additionally, we have a number of philanthropic efforts. We have put -- we have the long-standing -- well, a few years, we have a relationship with the American India Foundation. We have now partnered with the United Way, and we're really, really focused on closing the digital divide through our Extreme Academy program, which provides an educational program for the future networking population of the world. And finally, we have put together a group of employees who are working cross-functionally and they're geographically dispersed. There's 29 in total, and these are group employees that are evangelists for doing the right thing for our customers, whether it's direct or indirect, our suppliers, our employees, our communities and all of you shareholders. Thank you so much for joining us on Investor Day, and I'm so proud to be leading a change of culture and mindset here at Extreme through our corporate social responsibility initiatives. Thank you.

Thanks, Katy. So CSR is really helping inject some new energy into our employee base. It's amazing how people are embracing these initiatives. Employees, customers, suppliers and really all of Extreme stakeholders and our Board, we're all better aligned with today's business climate. Okay. Now over to Joe and Wes to discuss our go to market. Take it away, gentlemen.

Thanks, Stan. It's great for me to be around. I'm Wesley Durow, I'm going to have a chat here with my friend, Joe Vitalone. It was about a year ago, Joe, that you and I were sitting in a famous Italian restaurant in Dallas, and I wanted to tell you how excited I was to be joining Extreme as Chief Marketing Officer. And I was going through the growth opportunity and what really made it unique were -- it was this notion of culture, product and this opportunity go to the cloud. So if you were looking actually at trying something different, Ed has been our acting CRO at the time. And before I know it, you're full on right behind me as our CRO. So share with me kind of that experience over the last year, what you've learned, what it has been like. I'd really like to hear your perspective.

Yes. I can't believe it's been a year, Wes. And I remember that lunch at Campisi's really well, and you told me you had a great opportunity with a great company. And then I was fortunate to follow along a little bit after. And since then, we've just been on fire. I walked into a situation with a really great management team, first of all, Pete and John and Rob and Matt and John Barger, just a great group and an executive leadership team that had great, great culture. And so we got off to a really great start early on, 3 quarters in a row where we hit product subscription and our services revenue, our margins rose and our inventories came down. But one of the key drivers for me, as we discussed in that lunch, was this move to the cloud. I had done it, as you know, Wes, a couple of times before successfully. And so that was very intriguing to me. And so this move to the cloud with Extreme really resonated and it's resonating now in the marketplace, and it's been accelerated now by COVID. So that was a real big upside for me. And then we cleaned up the funnel going back a year ago, and our top line funnel had a lot in it, but it wasn't that great, and we cleaned it up and our weighted pipeline is outstanding, and we're looking now quarters down the road, which is really great to see. And then we improved our brand a lot in no small measure, thanks to your department. Our brand is highly recognizable, not just with our customers and partners, but even with our own and employees and the industry and pundits. So it's getting us in a lot of deals, almost all deals now, and we're up into the right -- in the Gartner Magic Quadrant perennially now 3 years in a row, and that's certainly helping. And we're building a real strong 3- to 5-year plan, which is something that I really like to see, and it gives me solace knowing that I've got a plan going out 3 to 5 years. So I had really high expectations based on that great lunch, and it's exceeded my expectations to this point. So I'm looking forward to the next 3 to 5 years with you here, Wes.

Yes. It's been interesting from my perspective as well because all those things we talked about, you just went through, a portfolio that is poised to take this company in the category of the cloud, 100%; a route to market structure that can deliver that; and then most importantly is the culture, a culture that was really to drive change. Extreme is on its 25th year, it's always been a challenger brand. It's been a brand that's had to look around corners. It's had to walk alongside customers to take them forward. This is such an important transition. All of that is true. And for me, as that came in, all these great assets, it was really about putting together a lot of the marketing elements. So in many ways, just wiring together our whole kind of lead gen process from prospects or suspects to prospects to win, to activation, to adoption, to actually try to use -- help customers become zealots for us, just the wiring that did not really exist. So everything else was in place. But as you said, building out that wiring, making sure we can help not only automate the lead gen process, starting getting those leads automated out to partners, automating a partner locator process, a lot of the just basic resources to put fuel on this fire and drive the transition to cloud, and we're really in a great position for growth. And I'm personally excited because I see what this means to so many of the partners but also so many of the customers we serve. When we just left the Super Bowl a couple of weeks ago where the first cashless, touchless event in NFL history and that whole digital transformation period of time has gone from years down to months. And in many ways, a stadium is like a microcosm of a number of verticals. It's healthcare, it's hospitality, it's retail. So it's been really great. And the opportunity here, it's just about accelerating growth, and that's what I'm excited about. If you could, you have made some go-to-market changes over the last year. And a lot of that as we came in, and I know you looked at this, there were some blue ocean opportunities, for lack of a better description. Talk a little bit about that, Joe.

Yes. So well, COVID changed everything, Wes. It accelerated everything that we were doing. But during the pandemic, during the crisis, the thing to do is to simplify. So the first thing we did as a team was we simplified around 3 pretty simple selling motions, protect and migrate our base, bolster and expand our partner program so that we were cross-selling wired and wireless products and introducing it to all new channels as well. And then third was this move to the cloud, making sure that our partners and customers were transitioning with us to the cloud. But I noticed really early on, and we talked about it a little bit in that lunch, was there's just a lot of markets that were underserved. And I noticed that when I came in and the team, we rallied around it. And now we're focusing to make sure that we're getting average market share at a minimum in MSAs around the globe. And so we shored that up pretty quickly. We have really good service providers that we work with, Verizon being the big name, but many others that are forthcoming. And those service providers will service globally, and we're starting to attract bigger names, people very interested in Extreme. And then with respect to go to market, Wes, aligning our sales and marketing organization, one of the key reasons why I came here was I knew that I could work really well with you and that sales and marketing would be one, and we've seen a really strong alignment between our sales organization and our marketing team with respect to how we spend our market development dollars around lead generation and all of the tools that our partners need to continue to grow their business. And so we're really in line there, which is nice to see. And then we automate it like crazy. We automate around Channel Self-Service, making it really easy for partners to do quotes, for example. And we have a partner locator now, so our customers can find our partners no matter where they are, and they can get multiple bids on jobs, for example, and know that they're going to be well taken care of in those communities. And then we just hosted a series of really strong events, our partner conference, Connect. And then we continue on now with quarterly business reviews with all our partners, town hall meetings, where we're really transparent with our partners with the health and what's going on at Extreme. So it's really been a good welcome change on go to market. Your thoughts on it, Wes? You've been doing this a long time. I'd be interested in what you think a year in now.

Yes. No, I'm more excited now than ever before. As I came in, a lot of it was really just clarifying the value proposition. And Ed had been acting CRO prior to your arrival. And he -- one of the key things he's really championed was the notion of the playbook. We live at this intersection of cloud, mobility and analytics. And those -- the intersection of those 3 kind of technology changes is a big driver for customers going forward, and it's really why you're going to choose Extreme, not past that transition. Nobody has a better choice in that. So that playbook process has really outlined the value proposition for our sellers. We've had to build onto that to make sure, okay, how do we take people from gen 2 to gen 3 hardware. This whole transition to universal hardware is a big driver for customers of all types in terms of bringing value. The transition to Ex IQ, opening up data and using it, network data for business intelligence is a big driver in a world where customer experience matters, adding on premier services. So everything we do and have had to do from a marketing standpoint is how to be up level because it comes down to not just the technology but what's the business value to all levels of customers; how do you drive the top line; how do you improve operating efficiency; how do you reduce risk; and, ultimately, how do you deliver a better customer-patient-student experience. And that's been the beauty of this kind of period of time. Like you said, digital transformation projects have all been consolidated from a timeline perspective and created really great growth for us. When you think about the channels that have gone through this journey, you've done a lot of these channels for a long time and many of them have gone through this cloud transition, right? But the cloud need now be transitioned, talk about what this means for the channels and how this opens up opportunities for them for a moment, Joe.

Well, we had a lot of channels that had done this to the cloud-as-a-service motion before, Wes. So there were no strangers to it. And frankly, this was a welcome change for them, an opportunity to sell and upsell into different levels within the account to get their average selling price up. So for those channels that have done it before, this was fantastic. And those that hadn't, we're spending a lot of time helping them transition, putting together workshops, for example. We just did a 6-step workshop on how to transition to the cloud and educating them and their companies, the sales and engineering teams, how to do it. And then we had breakout sessions, for example, in our partner conference. We're doing online training. We're providing them with financial tools like our LEAP program, which is our lending-enabled assistance program that helps them not only finance products, but gives them terms and certifications and trainings for free to help them transition there. And then it's opened it up to a whole new level of channel, the traditional SaaS channels, Wes, that have now come over and so given us an opportunity to bring on new channels that we probably wouldn't have had otherwise. And then now we're really focused on these managed service providers, regional, national, global managed service providers, our DMRs, companies like CDW, SHI and others now really attracted to Extreme. And then many of the big service providers, global service providers now are big candidates for us. So it's been a really welcome change.

That's great, Joe. As we kind of finish up here today, one of the favorite parts of my week is when we actually spend time with customers. It's our purpose for being. And as you described earlier, the playing field has been leveled that we can do a briefing, a virtual executive briefing anytime of the day, anywhere on the planet. And so I love to tell the Extreme story. Share with me kind of what your pitch is, like why Extreme? If you're an existing customer, why Extreme? If you've never worked with Extreme before, why Extreme? I'd love to hear kind of your story, what you share with customers.

Yes. Great question, Wes, and we do it every day. I'm doing it later today as a matter of fact. And most of them know by now, given 25 years and our status with Gartner and our reference customers like Federal Express and Lowe's and Kroger and W. L. Gore that we have fantastic products. But now we give them license simplicity and license flexibility and we give them cloud choice so that they can choose AWS, GCP, Azure. Unlimited data, for example, we talk a lot about that, our fabric, so we can go from wire to wireless, edge to enterprise and back. And then cybersecurity, that's a big one right now, Wes. All the CIOs now are really concerned about cybersecurity. So we give them a very healthy and secure network that they can plan on long into the future. And what they like to talk about and what they like to see is their engagement with our executive team and our management team that were very accessible. And one of the reasons why I joined Extreme was for that reason, and I've seen it and I see it every single day. And it resonates with customers, which is the reason why we're seeing the results that we have. And so a great time to be working at Extreme right now. Wonderful to spend time with our partners and customers every single week, helping them make this transition from gen 2 to gen 3 and beyond and moving now into the cloud and giving them a different choice on how they buy, whether it's in a CapEx environment or as-a-service environment. So that's what we talk about, Wes, great culture, a great group of partners and a privilege to be leading the sales organization at Extreme now.

It is really a great story to tell. I mean the network has gone from being viewed by many as a commodity to being a strategic asset. This period of time has proven out, as you said, better insights, better security. How you use the network has completely been reshaped, and it's a great, great, great story to tell. So thanks for sharing this. As we end today, Joe, I actually want to share with this group, a video you shot last week with one of our leading channel partners and what makes them so great with Ed Walton, President and CEO of STEP CG. They're actually -- when we talk about living in this intersection of mobility, cloud and analytics, they're doing it every day. They're pulling together the pieces to take existing customers, new customers to help them drive the top line, decrease risk, improve customer experience, really changing the game. So we're going to depart with that. Thanks for your time today, Joe.

Yes. Thank you, Wes. I am -- thank you, Wes. It's Joe Vitalone here. I am here with Ed Walton, the CEO of STEP CG, one of our big strategic partners out of Cincinnati, Ohio. He's the CEO of STEP CG. And Ed, it's a pleasure to have you here on our Investor Day, and thank you for doing this. How are things?

Oh, yes. No, glad to be here, Joe. Things are going well. We're just enjoying a nice gloomy day here in Cincinnati, a little bit of snow but we're getting by okay.

Yes, that's great. It beats Texas right now where I am, Ed. So hey, listen, let's get right to it. You have had an incredible journey with us at Extreme and some extraordinary wins, and I've been a part of a few of those, and I now have a front row seat to all of your success. But I'd like for you, if you could, just to share with our audience a little bit about how you win with Extreme and how you differentiate yourself and where your success comes from as a company.

Yes. No problem. Well, first of all, thank you for the partnership. And we're big believers in Extreme Networks and the portfolio. And who we are at STEP CG is we're a fast-growing IT security and cloud services provider. We're based in Covington, Kentucky. You could see Cincinnati right across the skyline here. We're actually in all the states with probably about 5,000-plus customers, full portfolio of networking, security, voice, professional services, managed services, and we've grown fast. During the pandemic, over the last year, we've added close to 50 folks, doubled in size. Despite the pandemic, it's actually fueled some of our core markets. And what we do is bring the best-of-breed approach to our customers. And our core markets are government, education, medical, all of which, they have experienced significant disruption. Digital transformation has happened. No one really had a driver on for what's going on. But they all need secure, reliable connectivity for their users. And we put together a full portfolio of solutions based largely on Extreme Networks for those customers.

Yes. So talk a little about -- you've been big with 5G and private LTE. Ed, talk a little bit about that and how you're differentiating yourself and where you see 5G taking us and how you plan to participate in that huge growth.

Yes. We're big believers in that. And that's kind of our differentiation is that not only do we have the best from an engineering standpoint from a traditional wireline and wireless and some of the other technologies I mentioned, but we really have invested heavily in LTE expertise. We have very close relationship with folks like [ Creative Point ] and whatnot. We're one of their fastest-growing enterprise partners. We think it's completely complementary to the Extreme portfolio, and it represents a huge opportunity because 5G will be the largest telecom growth spending that you will see on a global basis. And we think Extreme Networks -- basically, what it means is we're helping customers who are looking at things like 5G, private LTE, CBRS and so forth, and we'll be announcing some deployments here soon. Well, if you're going to build a private cellular or carrier-grade network, you certainly need a carrier-grade underlying network. And what Extreme Fabric and the rest of the portfolio brings is really cloud enablement automation, security. You can extend it from core to edge. And you can do common authentication for users and devices. So being able to provide that automated carrier-grade underlying network is key and critical to supporting a carrier-grade cellular environment.

Yes. That's great, Ed. And talk about -- you have a really broad customer base. I mean it's not one specific vertical. You guys are in small, medium business, large enterprise, state and local, government, education is really big for you, city, municipality. Talk about a few of your customers and what you've done a little to differentiate yourself with Extreme.

Yes. I mean, it's pretty exciting. We do some of the largest, most complex environments you'll find anywhere, Miami Dade, city of Miami, Florida, Duval County Schools. Duval County Schools is a great one. They're actually roughly about 200 locations. All the technologies you can think of from Extreme wired and wireless, Radware for DDoS. We're doing Palo Alto support there, Avaya and really [ Creative Point ] for high availability fail over to the fabric. And we also put in some things that complement Cloud IQ from a dashboard management and whatnot. And so that's a great example of a highly complex environment that has really been the showcase for both of us. And [ Stephen McLaughlin ] and the team down there, great reference customer, they actually just recently reached out to a few of the neighboring counties to talk about what they're doing with both Extreme and STEP. And it's opened up new doors for us. But we do a lot in not just government and education, medical, we actually are expanding into quite a bit with quick-service restaurants. Retail, surprisingly enough, has emerged during this pandemic. Some investment, we've taken over a lot of the cloud and managed connectivity for a number of large retailers. And what we bring to the table, and that's unique from the STEP standpoint is a lot of those retailers are looking at their traditional infrastructure and saying, "Hey, what do I do with LTE in a wide area network? How do I move to possibly a wireless WAN? How do I automate doing that? Kind of what's the easy button to roll out thousands of stores." I understand the flexibility to reduce the CapEx, OpEx and so forth. And we're able to put together that solution both in a traditional resale model, but also in managed services model but provide a lot of that automation and then on the front end and then management on the back end, leveraging things like Cloud IQ and so forth. That really gives them kind of a way to migrate to that future state smoothly and seamlessly and is of tremendous value to them. But we're also getting involved with manufacturing, do quite a bit in hospitality and gaming now. And we're seeing all sorts of value we could bring along with Extreme into new markets as folks -- the spending's changed, but they're solving a lot of the base connectivity issues they have as far as secure, reliable connectivity wherever their users might be or customers.

Yes. I talked to one of your big customers yesterday, as a matter of fact, and he was commenting about the sophistication of what you're capable of doing in private LTE and fabric and ExtremeCloud IQ. So really exciting to see from my end and enjoy partnering with you. Talk about automation. We've done a number of things with automation to make life simpler for you and your team. Ed, how has that helped you? And in terms of driving your business, getting quotes out the door and responding, I guess, more quickly to a really evolving marketplace right now that's moving very fast, especially due to COVID.

Yes. It's all about speed. And if we can increase our organizational velocity, that really helps to grow our business. And what you're all doing with Extreme, quick quote and this upcoming auto renewal process allows us to move faster, certainly on the transactional side of the house. So that part of our business is growing rapidly. So the more we can increase our organizational speed, and you allow that, making it easy to do business really in a self-service model, we can handle a lot of those small, medium-sized transactions a lot faster, while we drive more strategic conversations and quality of bats on the stuff we just talked about. So really 2 sides of the business. More from a high-level, very complex, large environments, and then you have this transactional level of our business that's growing rapidly and for you guys as well, while I couldn't -- while the tools allow that to go faster.

Yes. Talk about -- I came to Extreme for a lot of reasons, but one of them was as a service and to drive business to the cloud. We're seeing customers now looking to new buying patterns. You're leading that effort. You're a managed service provider, and you're doing a number of huge projects right now with networking as a service. So talk a little about that, what customers are saying about it? Why they're doing it? And what advantages are to it?

Yes. Everything you hear about digital transformation and disruption, all that means is cloud computing, mobility, Internet of Things, connectivity in all sorts of way, shape or form, artificial intelligence, machine learning, all that means that the network is that much more strategic. And what you guys allow us to do and we do together is offer really an automated environment that they can consume in a wide range of ways. It can be a traditional resale. It could be as a service. It could be with unlimited data. Customers are looking for flexible consumption models. And that's really what we've done is kind of take everything that we do from a traditional resale standpoint, it could be security, it could be infrastructure, wire to wireless, could be LTE, whatever that might be, an offer in a managed services model. And then we're investing heavily, too, on back-end analytics capability that complements what we do with cloud IQ to give the customers the full power of understanding data in their environment, certainly from an artificial intelligence and machine learning standpoint. And that's really where everything is going. So you guys allow us the flexibility to kind of put together the full package to offer that in a flexible format for our customers depending on how they choose to consume the solution.

Yes. And don't you think it's been accelerated exponentially due to the pandemic? Ed, you've been doing this a long time, what is your sense? I mean, it seems like the acceleration and the adoption of subscription and cloud and license simplicity, those things are becoming more important now to customers than, let's say, a year or 2 ago.

Oh, absolutely. Yes, there was no dry run for this pandemic. And every time you think that it's just getting extreme with things like Texas weather happens and the entire state gets shut down, right? So I mean we can't [ make this stuff up ]. So the one thing it's done is force digital transformation, right? So the cloud-enabled organization. If you were relying on the cloud or had moved to the cloud, you may have adapted a lot quicker to what happened in this current environment, right? You already had gone to the cloud for some things from a communication standpoint. A lot of our customers certainly deployed Office 365, and you got video conferencing like we're on now and so forth. So they were there, but a lot of folks weren't. So as far as supporting the network, the network is where the user is. It's totally flipped. So helping our customers solve for these challenges, and when you think about essential services and government education, medical, a lot of dollars are flowing in now to solve the connectivity issue, be it digital inequity of in-home student broadband. And that's where when we sit down with the customer and ask them what they're solving for, a lot of it's driven by the pandemic and there are dollars to leverage, they're just looking for the right solution that solves their problem short term and long term. And then as we get through this pandemic, we're going to have some type of new hybrid environment. And those folks that have solved the issue can certainly adjust and evolve to that new -- whatever that new future is.

Yes. Yes. That's great. That's wisdom that only can come from experience. So Ed, on behalf of everybody at Extreme, thank you. Thanks for the partnership. I'm looking forward to working with you. I'll be talking to you tomorrow as with our regular business meeting that we have, and enjoy the partnership, and keep up the great work with Extreme.

Likewise. Stay safe in Texas, and thank you very much for the partnership and the opportunity to talk today.

That was great. Wes and Joe. Thank you so much for talking to us about what it's been like joining Extreme just recently and really, all those exciting things that we have going on with respect to our channel programs and growth prospects and entering new markets. And thank you, Ed Walton, CEO of Step CG, for really giving a flavor of how Extreme goes to market with some of its top partners and what we're able to do, how you're able to stitch everything together, that best-of-breed, and really drive value for your customers and our customers as well. And now let's take a look at what Rémi Thomas has to say with respect to our profile of margins and growth. Take it away, Rémi.

Thank you, Stan. Hello, everyone. At this stage of the presentation, you must be hopefully excited about the strategic vision we laid out, the technology road map and the transformation that we're achieving as a company. But you're probably thinking how does that translate into numbers? Well, this is exactly what I'm going to talk about for the next 15 minutes or so. But before I do so, I'd like to take a bit of a look back at the financial targets that we laid out a couple years ago at our prior analyst day. In all fairness, when I look at the top line growth in excess of 5%, when we provided that target, we did not assume that we'd be hit by a global pandemic. If I look at the rest of the financial metrics, we've made good progress against a number of them. If you recall, our recurring revenue in fiscal '18 was around 22%. We're now at 31%, and we see a path to get to 35% or more. Our gross margin was in the high 50s. We've been solidly above 60%, and we see a path to do better. Our operating margin fluctuated between mid- to high single digits. Consensus for fiscal year '21 has us at 10%. And as I will talk in a few minutes, we can do better than that. And finally, we put a target out to take our cash conversion cycle down to between 45 and 55 days. As of Q2 of fiscal '21, we're actually at 44 days. If I look at our performance since COVID hit, we've been doing really well. Our execution has been strong. The revenue was impacted by COVID, dropped to about $210 million. But quarter after quarter, it's been picking up momentum. We're back to $242 million, which is a 15% increase from the low point. And obviously, with certain verticals picking up momentum, we should be getting back to pre-COVID levels pretty quickly. It took 2 quarters for our gross margin to get back to 60%. We dramatically reduced our breakeven point. So we benefited from operating leverage. So we saw a 15% swing in our operating margin from negative 5% to 10%. That drove strong free cash flow generation, enabled us to significantly reduce our net debt by $57 million, all of this, while driving accelerated adoption of our cloud platform with the number of devices under management, up 40% to almost 1.5 million. So what's next? Well, starting with the revenue drivers. We expect the enterprise networking market to grow between 3% to 5%, consistent with industry analyst forecasts. However, as you heard Ed say, we believe we're in a position to gain market share. In addition, we see 2 incremental revenue drivers. The first one is a service provider and 5G opportunity that both Ed and Nabil talked about. We expect incremental revenue to the tune of $20 million in fiscal '22, ramping to about $50 million to $100 million over the medium to long term. And the second one is the growth in our cloud subscription business. We expect our bookings to grow on average at a rate of 25% to 30% in the next 3 to 5 years. Three items for you to consider as you think about the financial model: number one, our subscription renewal rates should be in the range of 85% to 90%; number two, our maintenance attach rate should be in the range of 7% to 10%, so every time we sell $100 worth of product, expect us to generate $7 to $10 worth of maintenance revenue; and finally, the renewal on that maintenance should be in a range of 75% to 85%. I'd like to spend the next couple of minutes talking about our cloud business. As I just mentioned, bookings should be growing in a range of 25% to 30%. However, we expect an even stronger growth for revenue. This is due to the deferred revenue currently sitting in our balance sheet, which is going to be recognized over time. And that means that the baseline for Q2 -- exiting Q2 on an annual run rate is actually lower. As you can see on this slide, it's $56 million, whereas the baseline for bookings is $86 million. In any event, applying a 30%-or-so CAGR to that $56 million baseline for the next 3 to 5 years means that the contribution from our cloud business should be meaningful as a percentage of the total company revenue in the medium to long term. So take all this and imply it into your models, you should be expecting us to generate a product growth of 4% to 6%; you should be expecting our services revenue to grow in the range of 3% to 5%; and as I just mentioned, our subscription revenue in the range of 25% to 35%. All of that would mean that the revenue for total company would be growing at a range of 5% to 9% in the next 3 to 5 years. You should be expecting our recurring revenue, which in fiscal '20 accounted for 31% of the total, to grow to 35% or more, depending on the differential in growth between product on the one side, services and subscription on the other. Turning to the profitability metrics of the company and starting with gross margin. We expect a 5% -- percentage points improvement in our gross margin for product from 56% in fiscal '20 to 61%. If you recall, in Q2 of fiscal '21, we're already at 60.9%. So we achieved it during 1 quarter. We're now saying we can achieve it on an annual basis. The reason for our confidence is increase in volume, which will drive an additional 2 base -- 2 percentage points. The expected benefits from the expansion of the universal hardware platform; expected savings in our supply chain costs, mainly distribution, freight and tariff, offsets to an extent by the change in the mix with increased contribution from service provider, which typically carries a slightly lower gross margin than our enterprise networking business. We're assuming that the impact of pricing and discounting will be neutral. In other words, the competitive environment that we're facing today should be remaining unchanged. We expect our services and subscription gross margin to increase by 4 percentage points to 70%. This will largely be driven by the increased subscription revenue in the mix, subscription typically a much higher carry -- a much higher gross margin than service; the support volume growth, which will drive better absorption of our fixed costs, offset to an extent only by the mix impact of more professional services, which typically carry a slightly lower gross margin. As far as non-GAAP operating expenses are concerned, you've already witnessed a significant reduction as a percentage of revenue. Consensus has us at 51% this year, down from 55%. We believe we can reduce that by another 3% to 5%. In sales and marketing, you've heard Joe and Wes talk about the significant transformation that we're driving, and that will lead to further productivity gains. So we should be expecting our selling and marketing expense to drop by roughly 2% to 3%. In R&D, you heard Nabil talk about the simplification of the product portfolio, the impact of the universal hardware platform. This should generate a reduction in OpEx of anywhere between 0% and 2% of revenue. So looking at the overall picture for the company, starting with the P&L. You should be expecting us to increase our gross margin from currently 61% to a range of 63% to 65%, which, combined with a reduction in operating expenses from 51% to a range of 46% to 49%, should enable us to generate an operating margin of anywhere between 15% and 18%. As far as cash is concerned, we expect free cash flow, which we define as cash flow from operations minus CapEx, to be in the range of 11% to 13%. This is largely consistent with our year-to-date performance. In fiscal '21, we're 11.4%, and we'll be driven by the increase in operating profit, combined with a slight reduction in our cash conversion cycle and a tight control on capital expenditure. I hope you won't be surprised if I tell you that the #1 priority for us is to continue to deleverage our balance sheet. Besides the fact that we don't like having too much debt on our balance sheet, this will drive a reduction in interest expenses. Currently, we're paying LIBOR plus 450 basis points under the amended terms of our bank loan. If we're able to get leverage below 3.25%, that means we'd be paying LIBOR plus 325 basis points. That would be savings of $4.5 million in interest expense. If we can take it down further to 2.75%, we'd even be paying 50 basis point less and that would be additional interest expense savings of $1.8 million. We'll continue to dedicate significant organic resources to support our innovation strategy. As you heard Nabil mention, this will be essentially around simplifying, cloudifying the product portfolio investing in the universal hardware platform across all of our hardware platform; and obviously, further developing our service provider and 5G business. We do not expect any transformative M&A. However, should we have an opportunity to do a tuck-in acquisition, and as long as it's earnings enhancing to non-GAAP EPS year 1, we would consider it. And finally, we still have $55 million remaining under our share buyback authorization. Right now, it's subject to bank covenants. But as soon as we're back to the initial terms of our bank loan, this is an option that's available to us. So to sum up, we've got a bright outlook ahead of us. We believe that we're in a position to grow the top line between 5% to 9%. This will be driven, amongst other things, by the strong growth in our cloud revenue between 25% to 35%. We think our recurring revenue should be at around 35% of total within the next 3 to 5 years. Our gross margin should range between 63% to 65%, which would in turn help us generate an operating margin of between 15% and 18% and drive strong free cash flow generation at anywhere between 11% to 13% of revenue. With that, I'd like to turn it back over to Stan to begin the Q&A session.

All right. Thanks, everyone. Thanks, Rémi, for closing. Let's turn it over to Justin on the phone line, the operator, to queue up for questions on the phone line. [Operator Instructions] Justin, go ahead and queue folks up.

[Operator Instructions] And our first question comes from Samik Chatterjee from JPMorgan.

I guess just to combine a couple of questions here, and then I have a follow-up for Rémi. But on the presentation today, as you're talking about the opportunity here to gain market share, if I can ask you to hit on a couple of things. Firstly, as we think about market share gains, can you talk about it in relation to verticals? You talked about it in relation to the product portfolio doing better. But if you had to focus on which verticals do you see the strongest opportunity in, how would you characterize that for us? And I think similarly on the service provider side, as you outlined $20 million of revenue in fiscal 2022, and that goes to $50 million to $100 million annually over the long run, like is that more of a land-and-expand opportunity with the same service provider? Or are you looking at multiple wins to drive that? And then I have a separate -- just a clarification for Rémi, if you don't mind.