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

Welcome, everyone, to the 2022 Extreme Networks Investor Day. We're coming to you live from MLB headquarters in New York City. So welcome. This is our first hybrid event, and we have I would say almost packed house here. And we have a wonderful live stream happening online that you can follow. We're going to post videos. We're going to post the presentation up. And I wanted to introduce myself. I'm Stan Kovler. I run Investor Relations for Extreme. And we're going to have a great lineup for you today. Before we do that, I did want to remind you that we have some forward-looking statements, and you can check those out here on the slide, and we'll post those up. They're always available on our Investor Relations website. What we have going on for you today, it's a wonderful event. We're going to kick it off with a discussion about new ways and better outcomes by our CEO, Ed Meyercord. Then we're going to transition talking about Extreme's cloud expansion via our Chief Product and Technology Officer, Nabil Bukhari. We're going to do a Q&A right then and there and go to a short break. Coming back, since we are at MLB, we're going to have the Chief Operating Officer of Major League Baseball talk to Ed about how is using Extreme Networks' technology and how the digital transformation of MLB is helping them advance. And then when we come back from that interview, we'll go to our go-to-market and strategy discussion with our Chief Revenue Officer, Joe Vitalone. He's going to join us virtually. And then we will discuss supply chain, I know that's on everyone's mind. So we have our COO, Norman Rice, talking about that. Closing out today will be our CFO, Rémi Thomas, talking to you about our financial outlook and what's happening at Extreme into the future. And then we'll have plenty of time for Q&A. We'll be doing Q&A with folks in the room, and we'll have the Q&A available. I'll be moderating Q&A online. So without further ado, I want to introduce you to our CEO, Ed Meyercord.

Well, good morning, everybody, and welcome to MLB, and we want to say thank you to our customer and our partner for giving us this room. I don't know if everybody knows this, but this is where all the teams kind of -- they convene when they're having business meetings and they're meeting with the commissioner. And the fun fact -- what I learned yesterday, is that this is the very first time that they've opened up this room to anyone outside of Major League Baseball. So everyone in the room here, this is the first -- and we're the first visitors to be able to be here. So we're excited about that. What's interesting about MLB, we look at the different sports leagues that we cover, is that they are, by far, the most advanced league as far as technology, their digital strategies, than any other sports league, period, on the planet. And so in terms of them being first to have a digital app, first to start streaming games. And we look at what they're doing now, stay tuned for -- and we'll talk about a little bit when Chris comes up to talk with me about automated balls and strikes, PitchCom, which is communication between catchers and pitchers. It's -- they're very progressive. Biometrics, I think people go into the game at Chase Stadium, you're not going to need tickets, they're just going to know who you are when you walk in. So -- and all of this is supported by the network. So this is -- they're an ideal partner for us at Extreme. One of the things I'll talk about is new ways for better outcomes. This is a mindset of our company. It's about how we engage with our customers. And it's also how we engage with our investors. So rather than a traditional -- being in a hotel ballroom or conference room or being at NASDAQ and pressing the button, we thought it would be more interesting for our investors to be in this kind of a venue, a deeper appreciation of how we are engaging with our customers and customers like Major League Baseball. One thing that I will say, which is different because our investors know a lot about our relationship with the NFL, where we're exclusive provider of analytics. But in the case of Major League Baseball, they control technology for all 30 teams. So whereas NFL is more like a hunting license and we're the recommended technology partner choice. Here, they control that spend decision. So this for us means that over time, Extreme will be in all the stadiums. The other thing that we'll talk about is Minor League ball and there's a lot more of those stadiums and they have control of that technology spend visionaries for us, this is a really important relationship. We're really excited about it. We are hybrid today. This is the environment as we talk about new normal and our enterprise customers, this is it. our vision of the world is that we are going to be in a hybrid world going forward and all of our customers are gearing up for that. And so in the spirit of hybrid, Joe Vitalone, when he comes in, our Chief Revenue Officer, is coming in from Portugal. We had our President's Club meeting in Europe, and then he's gathering with leadership there. So we're going to bring him in. Nabil Bukhari, who is going to be here live, Chief Technology Product Officer at Extreme, unfortunately, picked up COVID. He was out on the West Coast for a wedding, so he couldn't get back, but we're going to pipe him in. Hopefully, he's feeling well. And then other members of the team, we've got Norman here, Rémi. I also want to mention the fact that we have a couple of other members of our team who are involved. Corporate social responsibility, it is kind of -- it's an important topic. I can tell you inside of Extreme, it's very important. And the things that we're doing and the initiatives that we have going on are creating a huge amount of energy inside of our company because our employees are passionate about it. But I wanted to mention the fact that we have with us also in our team, Katy Motiey. She's our Chief Administrative and Sustainability Officer. So leading up CSR, if you have any questions or interest there. Diversity and inclusion, Kimberly Basnight, our Head of HR, doing a phenomenal job. You'd be surprised what's going on at Extreme. Christine Nicole [ Koh ] is also here, and she's heading up philanthropy for us. So in a break, if they're interested, and you want to know some of the things that are going on at Extreme, check in with those team members as well. We have never been in a stronger position than we are today on many fronts in terms of our competitive position in the industry and how we're doing in terms of the competitiveness of our product portfolio relative to the rest of the industry as far as our partner relationships as far as our leadership team. And what this has led to is this unprecedented bookings. And what you're going to hear from us today and we'll talk about, it's the fact that the market is strong. We are enjoying a strong enterprise market for networking. And we're benefiting from that, and we don't see that going away. We are taking share in this market. We're not necessarily showing it on our financial statements because of the supply chain constraints, and we'll talk about that. But the fact of the matter is, we're building up a huge amount of backlog, and we're sort of masking our revenue. And then Rémi is going to talk about, in more detail, what this means when we sort of rightsize book-to-bill and then we start releasing this backlog in an unprecedented flow of growth in revenue and then also margin expansion. So we're really excited about the story that we have to tell today. I'm going to talk about -- my topic is really about new ways, better outcomes. And broadly speaking, we're at a very interesting time in the networking industry, where the network has become a lot more strategic. But there's a lot of information that you can pull out of a network. Networks are much more intelligent. When you talk to Chris, you'll find some of the ways that MLB is leveraging this data from the network. But there are more ways now that we can work with our enterprise customers to pull insights, to pull information from what's going on in the network to drive better outcomes for them. And so this is what we're doing in the sports and entertainment venue space, and it's what we're doing with our enterprise customers. And what I would say is we have a very different narrative and a very different story to tell in the market than the largest player in the market, where there's a lot of disconnect and we have a very clear vision, a very clear story to tell about migrating to cloud and then leveraging information, data and insights from the network in ways that you couldn't do this before. So this is -- we're very excited about this. And so that's when I talk about new ways, better outcomes, it's really a mindset at Extreme. We just had the best quarter ever, but we know we can do better. And so inside of how we're driving the company, this is kind of the mantra for us. So I'll jump into a few slides, I think I have a clicker here. This is just extending on that. So we talk about sports and entertainment. Interestingly, it gets a lot of airtime, but it's only 5% of our revenue. So when we look across our customer profile, and we look at health care providers like Novant, one of the largest health systems in the U.S. When COVID hit, we partnered with them to stand up COVID testing sites. They leveraged our cloud. We've got very interesting fabric technology that provides security and a lot of flexibility in terms of how you segment the network. So what we were able to do for them is to stand up in an arena a COVID testing site, extending our secure fabric out to the edge and then leveraging cloud and our Wi-Fi. What are the results? The new outcome for them was 4x in terms of the amount of people that they could treat and trying to drive and solve for what's going on with COVID. We look at what we're doing in SLED and with our education customers. And Vancouver, very interesting solutions for us in leveraging cloud. Here, we take out Cisco. There's a lot of disconnect between all the different schools. There's 21 different schools, et cetera. We brought them all under our cloud umbrella. So now they have complete visibility across all the different environments. And then for us, we bring them the insights and the visibility and the quality, connectivity, supporting things like one-on-one learning remote learning in a hybrid environment, and they're able to move very quickly. For us, it's really about being simple, easy to deploy and then flexible in terms of deployment options. And that's really a huge part of our differentiation of working with these customers. Finally, Borås Stad in Sweden. This is another Cisco takeout for us. But this is a public Wi-Fi environment. It's the largest cloud-driven public Wi-Fi environment in Sweden. And then what we did here is we unified it. Disparate systems and networks that they were using to manage municipal services. So here, we brought them all together under 1 cloud and now millions of devices in this community of 115,000 people are all running on Extreme. And you can imagine how much easier it is for them to deliver municipal services that are important, be it health for the elderly, et cetera, et cetera, across our network. So these are new ways that we're working with customers across all of our verticals to deliver better outcomes. So I mentioned growth in the market. It has been a very strong market for enterprise networking. Coming out of COVID, you've seen increased demand. We've also felt some demand coming from supply chain shortages where people are trying to get out in front of that. But the bottom line is it's been a strong market, and we benefited from that. At the same time, we're taking share. And I mentioned some of the competitive advantages that we have relative to the largest player. And this is where a small share gain by Extreme means a lot to us. I would say large crumbs. But as we chip away, we have a superior solution that makes sense across the enterprise. And as we take share, it has huge implications for our growth. And so you can see with the numbers that we just put up from the booking side, the exceptional growth that we've realized at Extreme coming out of COVID, and we see this continuing. So strong market, and we're taking share. The other thing that I'll mention here is kind of what's going on with cloud management. When we acquired Aerohive, you can see a nice jump in terms of our market share in cloud. And we've doubled down on that investment. We've gotten behind cloud. It's the fastest-growing segment in this enterprise networking business. So for us, we are taking share in cloud because of our cloud differentiation And you can see here, we're steadily taking market share. For us, this is cloud subscription in the form of annual recurring revenue of software. This has grown significantly. When we acquired Aerohive, let's call it, $35 million, $40 million of ARR, since that time, we've closed to tripled that revenue stream. We have new ways to grow, which we'll talk about that as we go forward. The other thing that helps us is that for the fourth consecutive year, Extreme is a leader in the Gartner Magic Quadrant. Enterprise customers, they pay attention to Gartner. So that's important for us. The other thing that's important, for the first time, we leapfrogged Cisco. And that was big. And if you look at the axis on the Gartner Magic Quadrant, what do they look at? They're looking at execution, how are we doing out in the marketplace. And I can tell you, our execution is never been stronger. It's only getting stronger as we go, and you'll hear from Joe Vitalone about that. It's also about our vision and where we're going with our technology and our cloud and our vision of the Internet enterprise and how we're going to support customers in this distributed environment. Here again, we moved out in front. So as the 65% market share player, stepping over them is a big deal. When people are looking for an alternative today, they want to hear from Extreme. And when they hear from Extreme, we get an app ad, pun intended. We get an app ad at and our betting average has gone up. So we're converting on more of these opportunities. So people are considering Extreme, they're surprised when they find out about how strong we're doing, the quality of our solutions. And then we're winning more, we're converting. So this is what we're seeing. And from a customer service perspective, everybody says they have great customer service. However, when you hear from the customers and they give their feedback to Gartner, we are always #1. It's a different experience. We like to say we're the right-sized company to work with. People feel like they have -- that we listen to them and that we make a difference. That's also a factor as we move forward in driving the business. So we'll talk about. You'll hear more from Rémi. A year ago. These are the numbers that we put out in terms of growth and our expectations Because of the strength of the market, because we're taking share, because of what I've been talking about, we've come out -- our outlook for the year is going to be slightly ahead. And as we go forward with the momentum we have, we're going to be taking these numbers up significantly. I want to talk a little bit about what's been going on from a product perspective. We've had double-digit growth now for 5 consecutive quarters on the product side. This is -- and when you look at there's revenue. When you look at it from a bookings perspective, we're masking the strength of the business because we're not showing full demand because we can't recognize it, that as revenue. As we go through and talk through this, we want to make sure that everyone understands the mechanics here because it's really important for what's ready to happen over the next few years. On the subscription side, we continue to grow that business. That's been the big driver for recurring revenue for us as well as just the strength of our services business, which continues to grow steadily. Early on, we thought the percentage might change and we might see more of a move towards the recurring revenue as an overall piece of the pie. However, high-class problem, our products are just going so fast the subscription business and the services and the recurring revenue can't quite take it over. But that will happen as you see as we build the model out into the future. So this just steps back through our stages of growth. Initially, we acquired Aerohive, and for us, it was about the move to the cloud. We've doubled down there. We've been very successful in driving our business in the cloud end-to-end cloud-driven solutions then for us it's about innovating and how do we innovate new tools. You'll hear Nabil talk about copilot in addition to our standard cloud management and visibility, we can offer visibility and we can offer automation and new tools to make it easier to manage the network. And you heard about that in some of the videos. As we go forward, we've been investing and we acquired almost a year ago, an SD-WAN company, called Ipanema. And now what we're doing is working at our cloud as an orchestration platform for new services. Because of the architecture of our cloud, which is fundamentally different from the largest player in the industry, we have advantages in our ability to bring services to market. It's a competitive technical advantage that we have that will allow us to bring services to market more quickly. And so now instead of just being on the campus, we have the capability to orchestrate services over the cloud across a wide area network. And that's where we're going. And that's -- as we look to the future and we look at the new services here, that's what you'll see. So there's SD-WAN, which is our entry point, and then you'll see WAN Edge services. And then what you're going to see is the expansion and growth coming from data services and new ways that we can support customers with software subscription. And then there's massive expansion coming when you rightsize book-to-bill and you start releasing backlog. It's going to be an unprecedented flood of revenue and earnings at Extreme. The other thing we're doing is with the expansion of the services that we've been providing is that we're growing our markets and the markets that we're moving into are faster-growing markets. So you can see as we step across, land is our basic infrastructure services and the cloudification, cloud management, et cetera. As we move from fiscal '19, 2021, growing into cloud takes up our total addressable market, or TAM. And then you can see with SD-WAN, we're expanding our market even more. And then with new services and WAN Edge, it's even further expansion. So you're seeing us expand the target market in a way, and we're moving into markets that are faster growing and we're taking share. So this just sort of sets the background for kind of what we're going after here. This is the book-to-bill. Rémi is going to spend a fair amount of time on this. But this is just illustrative of what's happened in terms of our backlog. Our backlog is more than 10x what it would normally be, and it means that we're not showing the revenue. And it also means at some point, we're going to have to release the revenue. And Norman is going to talk about supply chain and our ability to do this and our confidence with where we are today and how that's going to step gradually throughout fiscal '23. And then the timing-wise, where do we see kind of the 1:1 book-to-bill and then when do we release backlog? The implication for revenue, again, as I mentioned before, is unprecedented growth. Even if Rémi is super conservative in terms of what he assumes in terms of bookings. So this is the change to the outlook. And I'll reinforce, and Rémi is going to get into this in much more detail, but we will make some very conservative assumptions about what happens with bookings there's a macro economy out there. There's a lot of geopolitical events that are taking shape that might not be predictable. The world is obsessed with supply chain. So the issues that we're feeling here in the short term will work out, but we have taken for purposes of our investors in the street, we've just taken a very conservative view of what the bookings number would be, despite the fact that our markets are growing and despite the fact we've never been in a better position to take share. So this is how we're stepping up and then as we get to Rémi, he'll spend a lot of time going into this. So I'm going to pause here, and we want to pipe in Nabil from California. I think we're going to get him in, he's quarantining in a hotel. But Nabil, it was it was about 3 years ago after we acquired Aerohive that I promoted Nabil from within to drive our product organization and then later to become our Chief Technology Officer. Nabil has deep, deep domain expertise in the industry. In terms of all the people in our space, we would considered kind of one of the thought leaders very, very bright. He's also done a phenomenal job building our product road map, consolidating our universal hardware platforms. We have the most flexible hardware platforms in the enterprise space period. And he was the architect of that strategy. And then he's also been behind the development of cloud and then our extension and the orchestration of cloud services across the wide area network is where we see so much growth. So we thought we would segue now to Nabil and let him pick up and talk about software subscription and the expansion of that business. Nabil, are you with us?

I am. I am. Thank you, Ed, appreciate that. Well, good morning to everyone. As Ed mentioned, I was supposed to be there in person, but such is life. But that's the beauty of technology, that we can still be hybrid and still talk to each other. And I can still provide commentary today to the team that is present there. So as Ed talked about, that we are entering a phase of growth and expansion. So my goal today is to describe and enumerate the technology strategy that underpins that expansion. And I thought it will be useful to start it with a look back. So next slide, please, whoever is driving that. Wonderful. Thank you. So 3 years ago, as Ed mentioned, we stood in front of you, and we said that we are going to be maniacally focused on 2 strategies. You can build out the slides, Steven. So there's going to be 2 strategies that we'll be manically focused on. One was to cloudify the portfolio, which is on the right-hand side, and the other one was to unify the portfolio, which we called as the universal portfolio strategy. Now for those of you who are not maniacally focused on that every single day, I'll take a moment to describe what these are. So Universal portfolio strategy is about bringing all of the various products that we acquired from various different companies through acquisitions, bringing them together and converting them into one universal platform that is flexible enough to be run into any use case, anywhere in the network, and runs all the different OSs internal our company and is inherently cloud managed. Now that had multiple advantages both to us as well as to our customers. For us, obviously, it reduced the size of the portfolio. It made the portfolio more efficient. It allowed us to reduce the number of SKUs. It allows us to build products that are more efficient by nature, have higher gross margin potential and so on and so forth. But from a customer's point of view, it is the ultimate flexibility. It simplifies the choice for them instead of going to some of our competitors and having to choose between portions of the portfolio right at the very start and then being stuck with that. With the universal portfolio from Extreme, you can move between different use cases, different operating systems, different end games or outcomes as your business as a customer evolves. And -- boy, 3 years ago, a lot of people were like, wow, do customers really need that flexibility? And now standing up and looking at what the world has gone through and how our networking needs, technology needs have evolved and how rapidly they have evolved over the last 3 years, in hindsight, this was absolutely the right move to make. And our customers have really, really warmed on to that and they love this strategy. The cloudify strategy was simple, as the name talks about. We placed a big bet on the cloudification of networking. We placed a big bet at the acquisition of Aerohive that everything in networking is going to be managed from the cloud. And not only just managed from the cloud, it will be managed from 1 cloud. That swiveled share management is just not going to happen. And back then, there was a lot of talk about no networking different portions of networking, they want their own management platforms and they're used to those management platforms and WAN will be managed differently and LAN will be managed differently and wireless will be managed differently. And we place the bet that no we believe that the entire network and the entire enterprise, inclusive of wireless, inclusive of wired, switching, routing and LAN and WAN, will all be managed from 1 cloud. That's where the world is headed. That's what the customers want, and that's what really brings the simplicity into the networking. Now those were the 2 main strategies. And 3 years in into the strategies, almost towards the completion of that, I am so excited to report to this audience that we have been manically focused on that, and we have been amazingly successful in that. from a universal portfolio point of view, just looking at what we are shipping today, almost 100% of our wireless that we are booking and shipping out today is universal wireless. So that transition is already complete. And 65% of the wired has already transitioned on to the universal platforms, and we will complete this transition within fiscal '23. Now on the cloudify side, there are still many different ways in which I can share the success of it. Ed mentioned a few of them. We doubled our market share from roughly around 6.5%, 7% to around 13% today. Not only that, we more than doubled, tripled our cloud subscription bookings from when we acquired Aerohive. And our footprint is about 4x more than what we acquired with Aerohive. And this footprint is in terms of the number of devices, which is around 3x from what we acquired at Aerohive and also how many different places we are present as a cloud. We have increased our footprint in terms of regional data centers in terms of our local presence in various markets around the globe by about 5x in the last 3 years. So -- in a nutshell, I can say that these 2 strategies have been really successful for us from a technology point of view, from an awareness in the market, from a market share point of view and then obviously, the numbers speak for themselves. So what's next? The next is to expand on the strategy. We have found a book, a recipe book, that works for us, and we're going to evolve it and we're going to expand on it. So next slide, please. We are all here hybrid, and we have all talked about that how the world has changed over the last 3 years. And what every enterprise is looking towards is this distributed hybrid nature. Now that translates into don't bring the people to the enterprise to take the enterprise to the people, whether that is a health care system that is bringing their clinicians and their patients together, whether that's a school system that is bringing the parents, the students as well as the faculty together, whether it's the government providing services to their citizens, whether it is manufacturing or any other vertical out there, it is all about that infinite distribution. But most importantly, that infinite distribution centered around their consumer. And sitting at MLB, what better place to highlight that where it is all about the spectators. The spectators at home and in the stadium. In the system, in the schools, it's all about the students and the faculty and the parents. So it's already around consumer-centric but it all has to be done at scale, and that's where the biggest challenge of the future lies. It lies in the cost. Every business knows that they need to deploy more technology, they need to reach their constituents and their consumers wherever they are. But at what cost and at what complexity? The current solutions that are being proposed by some of our competitors out there are way too complex, and that complexity always leads to cost. So moving forward, our infinite enterprise strategy, next slide please, is very simple. It is about 1 network, 1 cloud, 1 Extreme. Making it so simple that it removes complexity, it removes cost and allows enterprises to reach out to their consumers wherever they are. So let me double-click on each one of them quickly. to really describe what we mean by that. So one network is about a network that is universal, is unified and it's instant. So let me give you a few examples around that. We already talked about the universal hardware platforms, how they bring flexibility and how they give investment protection and how do they allow enterprises to actually adapt to their changes, their demands, their requirements. Now expanding on that theme, we are moving from universal platforms to universal fabric. Actually, if you watched a couple of the testimonials from the customers while you were walking into the arena, you would have seen a lot of them talk about this fabric. Now that fabric for us has been at the core of the campus networks. And universal platforms has allowed us to bring it all the way to the Edge. And now we are adding Wi-Fi as well as WAN technologies as well as branch technologies into that fabric. So the entire network and enterprise functions like one. So you can deploy it, manage it and make use of it as one entity. That is the next step in the evolution of networking. Now networking, a lot of people talk about. And every time we talk about network, it's about connectivity. But as we move forward, it is not just any connectivity it is secured connectivity. It is really about bringing security and connecting it together. And that has been done before, but only in pieces around the network. You can deploy a switch and an act together, but then you can only secure the connectivity for wired ports in your campus and so on and so forth. Our vision is very simple that, that universal fabric that goes everywhere in your infrastructure, in your data center, in your campus, in your branch across your WAN, that fabric brings connectivity and security together. Again, bringing simplicity to our customers, making sure that they can reach their outcomes without complexity, without additional cost. And instant is all about an effort that then be managed from anywhere. It can be managed instantly from technologies like instant ports to instant stock to instant fabric to instant network. Our network is already aligned towards that instant rollout, instant management, instant troubleshooting. And we will continue on this path to develop this one network that goes everywhere where the enterprise needs to go. Next slide. Now that's the upward part of it. That's the secure connectivity part of it. That is from data center all the way into the branch. But bringing it all together is the cloud. Our maniacal focus on cloud is not going to stop. It is only going to continue. Now cloud for us is manage everything from anywhere. And it is also about not just management. It is about bringing that insight, that analytics, that business inside, the AIOps that Ed talked about, and bringing all of them together into one cloud that is secured by design. In the networking industry, we are by far not only the most modern cloud, but we're also the most trusted cloud with more than 3 ISO certifications and multiple stock audits, we are the only ones in the industry who are focused on that secure-by-design to reduce risk and increase trust will continue. And wrapping it all together, next slide, please, is us, the company. Ed talked about -- from our sales. I know you'll talked to Joe about it later, but from a sales and partners all the way back to our services and our customer success, we wrap the customer around all the way to help them move along on their journey to infinite enterprise. All the while keeping our eyes focused on the outcomes that our customers demand and want and reducing complexity and reducing cost. So that's the technology strategy. It is an expansion of what we've been doing together for the last 3 years. And this is really the next step in that evolution. But how does this translate into business growth? So I'd like to take a quick few minutes to describe that very thing. So next slide, please. So this technology strategy reads translates into expansion of our subscription business. And I'll focus on the subscription business here, as Rémi will talk a lot more about the infrastructure business and his model as well. So there are 2 concepts that are really critical for us here. One is ARPA, the other one is ARPU. ARPA is the average revenue per account. And this is the subscription revenue that we are getting from that account. You can also talk about it our base into the account, you can talk about our wallet share into the account. Now ARPU is the efficiency of it, which is the average revenue per unit, which means that how many dollars can we actually generate -- off subscription can we generate off of a unit that we have sold out. And our strategy is to keep increasing our base, which is our ARPA and enhance our ARPU potential on the devices that are sold into the customer. So if you build out this slide, there are 3 big cohorts in there. The base cohort is a cloud management subscription, which is the entry into our cloud system, which is the entry into our subscription business. And right now, anything in everything that we sell from a hardware point of view, we sell cloud management subscriptions with it. So that's the basis of it. The next is renewal migrations and additional subscriptions. Now renewal, obviously, renewal is a big part of our subscription business. We are north of 90% on a gross retention basis right now. Migrations are really critical for us because while we are transitioning our installed base to the Universal and all universals are cloud managed from day 1, but we have a huge installed base present of generation 2 and generation 1 products, and we have been transitioning them. Our transition for XMC, which is our old management platform, has been massively successful, but we still have pretty substantial installed bases of older technology, previous generation technology that, are available for us to migrate over, which will allow us to increase our subscription business much faster than the infrastructure business or the hardware business itself. And there is additional subscriptions like AIOps, covet analytics and business insights. Those are the licenses that are coming out as well. Now Ed talked about our acquisition of Ipanema. We not only brought it in, it is already part of our cloud. We allow released ExtremeCloud SDM. And now we are moving on to adding more subscriptions to that space of our portfolio through edge security as well as other associated subscriptions. Now how does this all come together? The cloud management really increases our ARPA as we keep selling more and more devices to our customers while these new subscriptions on the same devices increases our ARPU. Now WAN Edge does both. Now this is such an important point, and let me double quick on that. So next slide, please. If you look on this slide, we are selling -- and this is illustrative to just give you an idea, the potential of ARPU expansion that is inherent in our strategy. For a general customer, we are selling them cloud management, be it on the wired side, wireless side or SD-WAN side. They all have the same license. So that's cloud management. But every time we renew them, we actually expand our ARR to reduce discount and that's generally in the ballpark of around 5%. So that's a little bit of an expansion. But when we start selling them additional licenses like AIOps, which is our co-pilot license, that really enhances our ARPU over the baseline. Now you will see the same thing happen on the ARPA side as well, where this really corresponds to Joe's cross-sell opportunities out there. We can sell them wireless product, we can sell them wired product. And now moving forward, we are selling them WAN Edge products. Now the beauty of WAN Edge products is that's really mostly subscription. So that allows us to really hype up that ARPA for the subscription business as you see a very heavy potential for those WAN Edge products out there. So our strategy is very simple: increase the base and increase the ARPA, and that's really what's translating into that really elevated growth in our subscription business, as Ed talked about, and Rémi will talk about as well. Now before I leave you guys, I do want to spend 30 seconds on service provider because so far, whatever I've been talking about is our enterprise business. The next slide, please. But a huge opportunity for Extreme lies in the service provider business, in the 5G rollout that is happening out there. So again, what I have been up to, we said that we would be on target to do an incremental $20 million from the 5G telco opportunity in fiscal '22. We are on pace to exceed that. And we reiterate that this is going to be a $50 million to $100 million per year run rate opportunity for us in the next 3 to 5 years. Now this, obviously, the 5G telco rollout, is at the very, very start of that cycle. And we believe that we are very well positioned to not only take advantage of the telco spend cycle but also of the enterprise spend cycle that will follow on. Now this is in partnership with one of the leading -- the market leader for 5G technologies for telco out there and be embedded in their solution. And in fiscal '22, we went from POCs to the first production deployments. So this is a space for us for you to focus on as we move forward because we believe that 5G is equally as big as the cloud in terms of opportunity, in terms of potential for Extreme. With that, I'll leave you with one thought. It is all about simplicity. It is all about that outcome and finding new better ways to get to that outcome. And for the next 3 to 5 years, we are going to be maniacally focused on one network, one cloud, one Extreme. And with that, I'll hand it back to the host in the room. Ed, if that's you, or Stan, if that's you.

All right. Thanks, everyone. And what we'd like to do now is we're going to bring up Ed with me here, and we'll have Nabil up on the screen. And we will do a Q&A session just about the topics that we covered now.

[Operator Instructions] First question, we've got one.

It's Mike Genovese from Rosenblatt Securities. I want to go to the -- Ed, the book-to-bill slide. I thought that was pretty interesting. And the trial -- it looks like the trend that I'm seeing, but I want to specifically talk about the confidence in calendar '23, that it seems like you think orders will be above reported revenues in calendar '23 based on the slide? And just sort of what are you seeing right now that gives you that confidence?

Sure. And we are going to address this specifically with Norman Rice, he's going to come up and talk about supply chain because it's really all about supply chain right now. We have this backlog of $426 million at the end of March. It will be over $450 million at the end of the year. And then as we go forward, as I mentioned earlier, we are taking share. And we don't see the world stopping on July 1 in terms of what's going on in the market trends. And that's going to continue. So it really becomes more about if we have a booking strength, and we have this huge backlog, then it becomes about confidence in supply chain. And so our teams -- when Norman talks, he's going to talk about what it is that we've done a shift in strategy, things that we've done tactically to get our arms around supply chain. The other thing that I would say is that if we're going after for chasing $100 million backlog, you have a smaller target than if you're chasing $450 million of backlog. So if I'm chasing that larger target, it's easier for me to fill, so to speak. So what we see as we go into '23 is a releveling of book-to-bill. We don't get to [ one ]. So this year, if we build $350 million of backlog that would have otherwise been revenue. Next year, call it, $150 million, hypothetical, it's not exact. So $200 million will release if we can deliver it from a supply chain perspective. So that's where this really becomes about how we step supply. I don't want to steal all of Norman's thunder, but the bottom line is because of the changes that we've made in terms of the shift in strategy, i.e., we don't have a problem with Broadcom, Broadcom is a strategic partner of ours. That's not where we have a constraint. It's the secondary tertiary component parts. And now we've gone direct. So our ODMs still have that line. And now we've gone direct and now we're going after a bigger target. So our teams are confident this quarter in terms of what we're calling and stepping quarter-by-quarter through our fiscal '23. If we had a guess, we put that 1:1 book-to-bill sometime a year from now, maybe Q1 September quarter fiscal '24. However, that step for us does represent the growth that Rémi will talk about. And we are quite confident in that -- confident enough where our Board authorized another $200 million of share buyback. And we're -- that we announced today, and we are incredibly confident about our ability to deliver on that.

Just quick follow-up. I don't want to put words in your mouth, but it sounds like you're not seeing any deterioration in the funnel at this point. When you look out as far as you can see, there's [indiscernible] does not have an impact.

So if I look at our funnel, where we sit today versus where we sat last year, our funnel is up quite a bit. So we are kind of -- we talked mid-teens growth. We see mid-teens kind of funnel growth looking out year-over-year. As I mentioned in my other comments, our batting average is higher, too. So we're converting more on it. When you hear Joe Vitalone, Joe will be coming up next, we have our direct sellers focus more on projects. We've invested a lot in channel automation for smaller deals. So -- and we're seeing more success winning these larger projects, and that's contributing to the higher batting average. So it's really -- there's the short-term constraint of supply chain. And then there's this long-term release, releveling book-to-bill, eventually unlocking this backlog that's going to create such a wave. And as I mentioned before, in order to put out guidance to the Street that is somewhat conservative, we made a very different assumption in terms of what that bookings would be.

Nabil, while you're here, and thanks for joining us while you're enjoying your COVID outbreak -- and I see you've got your blue sky going there. So -- I was hoping you could talk a little bit about the contrast, what you're doing in terms of architecture and what Cisco has done in terms of its architecture. And why that's sustainable in terms of the cloud nature, ability to disrupt a traditional architecture, how do we get our arms around that? Is it microservices-based; Is it cloud native? What drives the scalability and differential in that architecture? And how hard would it be for Cisco to do an overlay on their network that mimics that and tries to bring that commonality into place?

So that's a great question. And obviously, a question that I love to mostly talk about because this is a great -- this is a choice that we made 3 years ago. When we acquired Aerohive, Aerohive was on a path of this latest generation of cloud architecture, and we decided to heavily invest in that and accelerate that. So that was a very deliberate choice for us. So what's the real difference between them? Really, real difference is that -- well, cloud has been around for almost 15 years now in one way, shape or form. So the technologies that underpin the cloud as we understand that has evolved over time. There used to be like, "Oh, I'll take a piece of software, and I'll run it in a VM, and it'll allow people to connect through HTTP". And that used to be the first generation of cloud. And to your point, at the current generation, it is not even just about micro services, but it is actually about running those micro services anywhere. For example, they could be run in any of the big cloud providers, be it Azure, be it GCP or be it AWS. But at the same time, having the ability to run it locally in somebody's data center or somebody's cause it as well, and doing it all with the same operational model. So that's one aspect of it. The second aspect of it is -- we're running it in such a way that you can actually certify the operations of it. And that's one of the reasons why we ones who have such a defined cloud operations that we have been able to certify it with ISO and SOX. And again, not only for one infrastructure as a service provider, but all 3 of them and also when you run them locally. So those are the 2 main things. The underpinning technologies, which are microservices and Kubernetes space today as well as operations which are certified and up to a certain center. So now those are the 2 main areas in which we differentiate with our competitors, especially Cisco. Cisco is still like, I will call it a generation and half, behind us. And some of the others are about the generation behind us. And by the way, you'd be like, hey, you could stand up and say they're all day long, but what's the proof point? The proof point is in 2 things. Number one, no other cloud is certified in their operations. Number one. Number two, none of the other clouds actually run and in all of the infrastructure providers, plus locally. We are the only ones that can do that, right? Now from a customer's point of view, the value of that is that management anywhere, that flexibility. I can run it in whichever service provider or a cloud provider that I want. I could run it in a private RDC, I can run it in my data center or I can run it in my closet, which is the latest generation of cloud technologies that we have pushed out. Now the last part -- and by the way, the advantage to us is cost. This -- the cost that we incur in scaling our cloud is considerably less compared to anybody who's not running on the latest generation. And that was when I was talking about 4x increase in our footprint without really damaging gross margins. Now your last question is that can Cisco do it? Yes. Anybody can do it, but it would probably take them about 3.5 years if they started today. And by the time they get to this generation of cloud, we will be 2 generations ahead. And that's really the whole cloud race. So once you get ahead, you stay ahead because the pace of innovation is so strong in that, and is so fast in that space. So hopefully, I touched -- there were like 3 or 4 sub-questions in your questions, so I hope that I touch most of them.

Woo Jin Ho from Bloomberg Intelligence. So I'm trying to get a better understanding on how the sales discussions have evolved over time. I'm trying to figure out what the -- what's the horse that pulls the cart. Is it a cloud discussion that pulls the rest of the switching business? Or is it a switching discussion and then we have the cloud and the management that pulls everything else with it?

So...

Am I on?

Okay. So -- Nabil, I'm going to -- I'll jump in and then I'll let you back me up here. It used to be about hardware boxes. I mean, this is a networking industry where it was really about speeds and feeds, and then it's evolved. Cloud has changed the discussion around insights, intelligence from the network, how are you leveraging the network strategically to drive outcomes. It's also part of our -- the mantra, new ways, better outcomes. So our narrative with a customer, it's really interesting, and we get their attention. When I open up the conversation with a customer and I say, "How are you leveraging data from the network to drive your outcomes?" And most times, they get a blank stare. And people will look at me like, what do you mean? What do you -- and do you know that you can pull, you can access and you can glean insights today from the network, from our cloud, and you can use that data to support business objectives that you're trying to accomplish? It could be in health care, it could be an education. It could be in manufacturing. It could be in sports and entertainment. And I would say, as far as the data analytics, no one is more advanced than our customers in the sports and venue space. So then it's -- that totally changes the conversation. And then it makes speeds and feeds a lot less relevant. The other thing, Nabil -- talked about AIOps and tools that we have, and that's really more about operating efficiency. Predictive, you saw in the video, hey, I can predict a network issue before it happens. And then what do we do to mitigate that and support that. Nabil talked about the consumerization, being able to do that from anywhere. We have -- I have ExtremeCloud at my house. If I have an issue, I can actually manage it from my phone because we have an app to do that. So this is what we're solving for operational efficiencies and driving sort of productive network environment that can be run very efficiently and securely. And then also, we're getting people to think about reimagine the network. Today, it's not just about speeds and feeds and plumbing, there's a lot more there, and there's a lot of ways that you can leverage new intelligence from the network to drive outcomes. Start thinking about the network as fostering and driving outcomes. Nabil, I don't know if you want to add to that?

Ed, that was spot on. I would only add a couple of things. which is that there are really 2, 3 axis, as you pointed out, at where the conversation starts from. One is around consumer experience by being the spectator experience or be it like in the hospitals or in the schools and stuff. And that automatically leads to cloud and an infrastructure that is cloud optimized from ground up, which is our universal portfolio. Because the cloud by itself is the entry point, but you need to have the portfolio that is cloud optimized from day 1, which is, by the way, another huge advantage that we have compared to our competitors where they might have brought cloud technologies on a platform that was developed 10 years ago. And you know who I'm talking about. But with us, our cloud and our Universal was developed hand-in-hand ground up together in the last 3 years. So that's a huge advantage for us. The second one really is conversation around costs that I talked about. And I would add that it's not just about cost, it's also about complexity. Most of the other networking vendor, if you pull up their portfolio, their portfolios have various different blocks and they have a service provider portfolio and a data center portfolio and a campus portfolio and an edge portfolio. And they all literally are silos. They all work together on the slide, but you start deploying them together and the operational models are very different. For us, if you look at our portfolio, you will simply see universal platforms at the bottom and cloud at the top, and that is it. And that simplicity translates into cost reduction and more availability. So that's the other angle from which we see a lot of conversation coming in and leads us to our fabric. So it's really truly these 2 areas where we come in from. And it's -- I would say that it's neither the cloud pulling the fabric or fabric being the cloud, it's really those 2 built in other ground up for the outcomes that Ed mentioned. And that's why I'm not a sports person, so I'll just take Ed's word that [indiscernible], what that means, which means that there are more people who are talking to us. And when they are talking to us, we are winning more.

Old school. Ed, I've got 2 questions. First of all, what is [indiscernible] Stadium? And the second question is, do you have any appreciable amount of your backlog that is coming from Web 3.0 companies, which don't generate any cash flow and their stocks have gotten crushed recently and it could be suspect in the backlog?

Yes. So Norm is going to talk about this as well, Andrew. So thanks for the question. I would say the answer -- the short answer is no. We have significant confidence in the backlog, what's there. We have complete visibility because they're all customer orders. So they're very specific projects that we can see as part of our backlog. And so if it's Citi Field and there's a project, we would know if there were 2 of them, right? I mean it would sort of stick out and there wouldn't be. So -- and as far as sort of the 3.0 companies, for us, we are less -- we're not selling to the cloud service providers as much, it's more sort of your traditional enterprise type customer. Yes.

We've got a question from -- okay, we'll do a question in the room and one more from the web.

It's Rob Maina with Cramer Rosenthal. I think what we're all trying to figure out, honestly, is if you look at the backlog and you guys test the durability of it, is there a risk of potential double ordering in that backlog, maybe not with you, but maybe order going to switch from you and a switch from Cisco? And I just want to get whatever switch comes in first. So if you look at that backlog and you say, "Hey, look, there's a lot of strategic accounts in here, X percent is tied to long-term projects where we have great visibility that that project will come to fruition," versus run the mill, I need to switch. I'm just going to put the order in the book. And I'll cancel on you guys when I get to switch in Cisco. If you can address that.

Sure. Look, so lead times, I mean, one thing -- and you'll hear Norman again talk about this, but our lead times are as -- or more competitive than the rest of the industry. Nabil talked about the streamlining of our universal portfolio. We have a more finite number of SKUs that we're out chasing and our teams have done a phenomenal job on the execution front working with suppliers to deliver. So if you look at industry lead times, we're right up there. So it's not like our customers have a place to go where they know they can get something more quickly. Our customers double ordering with other vendors. I'm sure that's happened in certain cases, but for the most part, we have -- through our partners and through our channel and through our existing customer relationships, we have, I would say, a very high visibility and strong confidence in what we've got. You can see our order cancellations have been less than 0.5%. So I think that's where you would see it, and we watch it very, very closely.

Let's go to the webcast. So a question for you and the Nabil from Fahad Najam at Loop Capital. What is the business problem your customers are addressing with your technology?

Nabil, do you want to go first and I'll pick it up.

Yes, absolutely. I mean there are 2 or 3 that really pops up. Like when I talk to the customers or when Joe talks to the customers, at the highest levels, there are 2 big areas that they're concerned with. Number one is that the world just changed through the pandemic and all of a sudden, everybody has to deliver their services, deliver experiences, reach out to their consumers in a very different way. I'm sitting in MLB, I mean that was for the sports and entertainment. That was like a very, very different pre pandemic and post pandemic or the health care systems or the school system for the city governments for manufacturing and stuff. So the first thing is how do they manage the expectations of their business as well as their consumers in a post pandemic world through the use of technology. That's the #1 business problem that they want to solve and they will come to us for that. And #2, which is very intricately tied to it is that they are really worried about the complexity and the cost associated with the solutions that they are hearing and seeing in the market from some of our competitors. And so that is there is a huge amount of need but there is a huge amount of risk because of cost and complexity that they see. Now obviously, that bodes really well for us because we can solve both of these. We can solve the infinite distribution. We can solve the secure connectivity through the set of technologies that we have, and then we can reduce risk, reduce complexity and reduce cost through the streamlined solutions and the streamlined portfolio that we have with a single hardware portfolio of universal products and a single cloud. It doesn't get easier than that. So that's really the 2 business problems that our customers are trying to solve, and solve in a very short period of time, and it works very well with the portfolio that we have built. And I'll hand it to you if you want to add something.

Yes, well put, Nabil. The only thing I would say is, I mean, it's overused digital transformation. I mean each -- in health care, they're looking at remote medicine and how do we support our patients now from home. Education has its own challenges that they're trying to address manufacturing as we go across all of our verticals and all of our customers, it's all about how do we accelerate initiatives that may have been in place looking out 5 years, they're pulling them forward. And I think I think we're right up on it time wise, and we're going to have another Q&A session at the end. So I think we should pause here. And I'm going to come back and I think I see Chris in the back of the room, Chris Marinak from COO of Major League Baseball be here. And we'll talk about some of the challenges and some of the initiatives that they're facing in the ballparks and with their fans, customers, et cetera. So thanks, right now, we'll take a break. How long we have break for, Stan?

We're going to break for 10 minutes. So this is the seventh inning stretch. And then we're going to come back with Chris, and then we'll talk about digital transformation. [Break]

Okay. We're back. And I'm pleased Chris Marinak is joining me, the COO of Major League Baseball, and he joined in 2008, I believe. And prior to that, he was a college ball player at UVa for the Cavaliers, Harvard Business School. I think it was the sports journal or the top 40 under 40. And among his responsibilities -- of all the responsibilities as COO, one of them is technology and digital strategies, et cetera. And so -- thanks for -- First of all, thanks for having us here. And then thanks for joining us.

Happy to have you guys. I was telling Ed, this is one of the first times you've been able to use the space due to the pandemic. So it's great to have you guys here.

So Chris said that they opened up in January of 2020, used the space for a month and then everybody left. But it's going to be back and it feels like people are coming back. So I think the audience here would like to hear from you about -- well, this is really a tech-focused audience. And then how you're leveraging technology to engage with fans? How your fans consume the game, the experience? And maybe just kind of at a high level, hear you talk about that a little bit?

Yes. So at baseball, we've made a commitment for really 2 decades now to strategically prioritize technology. If you follow us, you know that we had this MLB Advanced Media unit, that started in early 2000s. And then we were sort of first to get into the digital streaming space with MLB.TV. This is actually the 20th season that we've had a digital streaming product, MLB.TV.

That was before -- you were the first?

Yes, I mean we were the first really live property to be on a digitally streamed platform, and it was pretty basic when it started and it grew over time. And the technology actually ended up being the foundation for Disney+ and a lot of other major streaming technology. And so we felt like the heart of baseball is using technology and data to reach our fan base. We've invested in that from the beginning, and it's sort of a core tenet of what we do here at mutually basis.

You've had results.

Yes. Look, so MLB.TV is probably the largest direct-to-consumer sports streaming property. We have a variety of other products like MLB app, which is the #1 rated sports app for scores and baseball information. And we've been investing in a new product called the Ballpark app, same thing, very highly utilized. If you're going to the game tonight, Citi Field, you'll use that to get into the ballpark. And so we've really made an investment to understand our fan base and our audience and use technology to connect.

And so biometrics, right? So the whole idea is that you won't need a ticket. Is that where this is going?

We're working on that. And obviously, Extreme will be a big part of that because you have facial recognition technology, you have scanning technology that would eliminate the need to go through winding and mags. And then the backbone of that is all built on our Extreme infrastructure that is that across all of our ballparks in baseball, particularly at Citi Field. If you go to the game tonight, you'll see the infrastructure that we have from Extreme there. That really fuels the back end of what happens in a ballpark both for entry, but then also for fan engagement. So fan WiFi, delivering highlight scores, standings, information to fans during game, that's all powered on the back of the Extreme Network.

And when you think about the game itself, automated balls and strikes feels pretty revolutionary, but you're pretty advanced in the process, and I think people might want to hear about that. And how should we expect to see that kind of enter the game?

Yes. So I know I talked about technology from a fan engagement standpoint, but a dual purpose to that is actually using technology to enhance the game on the field. And so we have a system that calls strikes -- automated calling of balls and strikes, they can actually track a pitch to less than tenth of an inch of accuracy. And our empires are good despite what some of our fans think. But tenth of an inch is ...

It can't be that consistent.

Exactly. So it's a really good technology. We've been using it in the minor leagues. And I think at some point, you'll see that at the Major League level, not next year, but at some point, I think that's where the world is going, but we have a whole host of other technologies. If you're going to get toward the office today, you can actually go see our replay center down on the fifth floor that does all of our instant replays. And another great technology that we use at the venue is our dugout iPad. So all of our players get access to an iPad with live games, stats, information, video. And that's all, again, powered on the back of the Extreme Network, all the WiFi equipment that we have in the dugout and the bull pens is all fuels that iPad technology. And those types of things are examples of the clubs who embrace technology and embrace data are the ones that are more successful. And we see a clear correlation between like traffic on our iPads and winning on the field.

I thought that was fascinating because Wes mentioned that it's true that the fans that are actually leveraging data and using the technology are actually winning more.

Yes. So we have a dugout iPad application that allows you to look at video and stra charts and other data during the game. And so we found that the teams that have leaned in and embraced that, the coaches that understand how to use that technology are the teams are more successful. I think 2/3 of our playoff teams last year were in the top tier of usage for that product. And so you see how these types of things fuel the on-field product, alongside what we get from a fan engagement standpoint around bringing our fans to the ballpark and creating a business opportunity.

So we talked -- so one of the things we're talking about before you came out -- new ways, better outcomes, and this kind of our mantra at Extreme about how would you -- and I think that's another proof point for us in terms of leveraging technology to drive a better outcome. What about PitchCom because that's out, I think that's already being used and the introduction has that been successful? And any thoughts on that.

We introduced a new technology, you may have seen it if you've been watching games this year. The catcher wears a keypad on his wrist. And the pitcher actually has a like a bone conduction sort of speaker in his hat. And you can press a button and it says fast ball down and in right into the pitcher's ear. And so it eliminates the need to give signs, it eliminates the idea of giving multiple sign sets when there's a runner on second base, which slows the game down. And it just creates a much more seamless interaction. And again, you see the same thing there. We made it optional for the clubs. The clubs that are more progressive, the clubs that tend to be more innovative, leaned in right away and have taken advantage of it. They've been more successful. And then now what you're seeing is all the other clubs are rushing in to use that product because they've seen how successful it is.

So one of the things that's different about Major League Baseball is that you control technology for all the different venues. And I would think that would help you control the product at the end of the day. Now you've taken operational control over Minor League ball. Do you want to talk a little bit about that and sort of what that means?

Yes. So part of our technology strategy that we really feel like central control of technology infrastructure allows us to harness scale of the league. When you start to think about what's unique about baseball, we have 70 million fans that go to a Major League game every year, 40 million that go to Minor League game. You're talking about a customer franchise of 110 million domestic customers. I mean that's -- banks kill for those numbers. And so we want to take advantage of that fan base and that customer base by leveraging technology. So when you talk about WiFi in the ballpark, when you talk about other infrastructure, when you talk about making live video available for streaming online. We stream every single Major League game, every single Minor League game, home and away broadcast. And again, a lot of that's on the back of executing...

Do you do that for Minor League games as well?

Yes, actually we have a product right now. You can watch -- there's over 100 games a day that are -- you can watch from a Minor League standpoint, all on our digital platform. The video is routed directly from the ballpark back to our broadcast command center, which you can actually see here downstairs, and then it's made available for fans, same as all of our 15 Major League games every night.

So everything coming back in here, this is the -- in terms of regulating the game and making calls, you'll be making calls here.

Yes. This is kind of the nerve center of our entire baseball operation infrastructure. We have the replay room, the replay center, but we also have all of our video transmission capabilities headquarters here as well. And so what you see both from a fan engagement standpoint and from an on-field standpoint are all really routed through this office. We have a room that does scheduling and rescheduling, you can look at live camera angles from center field from all 30 ballparks in real time, you can see what the weather is like. You can see if batting practice is going on. And so we've really gone out of our way to make this office sort of the nerve center for running the game.

That's exciting. I want to shift the conversation over to -- I know another important initiative, which is youth -- sort of engaging youth, and then technology has got to play a big role in that, given how our youth are consuming technology. So thoughts on how you're approaching that.

Yes. So we've done a lot of research on the fan base. One of the biggest determinants of whether you're a fan of baseball is whether you played the game or exposed to sport in some form or fashion, baseball, softball, playing as a kid or even just attending as a younger person. And so we really go out of our way to make sure that the game is accessible and available to young kids. You hear a lot of chatter about how people aren't playing sports generally or baseball as young kids. But the reality is baseball is still the #1 participation support between the ages of 6 to 12. We still do a lot of great work to connect young kids to the sport. And that's a foundational element for us in terms of growing the game. From a technology standpoint, we try to use our platform as a way to connect with that audience. So we have a whole host of products on our YouTube channels and other avenues that allow us to connect with younger fans and expose them to the sport because once you expose someone at that young age, it's a little like a 2x multiplier in terms of their future engagement with the property. And so we really do a lot of work to make sure that we reach that audience and try to grow that fan base.

So you're thinking about going for the Minor Leagues to the Little Leagues controlling [indiscernible]

So the commissioner has this mantra called one baseball. So his philosophy is it's not just professional baseball, it's baseball from start to finish. So Little League, College, Minor Leagues, professional and really trying to be involved in that entire ecosystem and create consistency across that full gamut of participation. And so we have an entire department here that's dedicated to use participation. We have a whole host of programming that's aimed at creating opportunity for kids and underserved communities. We have a program called RBI that has about 300,000 -- 350,000 participants every year in inter cities and urban communities, giving kids a chance to play and get exposed to the sport. We have urban youth academies in I think 10 or 12 cities that provide high-end elite instruction to kids. Hunter Green actually, who's -- who won through a no-hitter and lost the other day is a product of that platform. So it's been a real big success, and we've spent a lot of time and energy in the space to try to get kids access to the sport.

That's awesome. So then just take a step back for a minute and you look far out into the future, technology vision. When you're thinking about plans, well, first of all, how far out do you think? And then any big ideas that you've got for the league technology vision that's out there.

Yes, look, we always try to look 5 to 10 years out. I mean, obviously, there's a road map for the next 12 months, but we really try to think about what the world is going to look like 5, 10 years from now. And I mean you actually raised probably the one, I would have thought of right off the bat, which is trying to streamline access to the venue. I mean one of the big complaints that we get from fans about coming to the ballpark is where do I park? What gate do I go to? How do I get to my seat? And so we're really going through a holistic effort to rethink that whole process, starting with no-wait entry, like no ticket scan, no security scan, just walk in. And in fact, it will actually unlock another benefit, which is reentry. So if you don't have to scan a ticket, and we know you by your face, you can actually leave, go do something else for anything or go pick up some food and come back because you're not handing your physical ticket off to someone else. And so that just unlocks new opportunities for fan experience that we think will create a compelling product for baseball. So that's probably the biggest one. And then I thought we're always investing in media and streaming. And I think you see where the world is going with a lot of the digital streaming properties. I think we're in a good position based on the history that we have in streaming. But you're going to see us do more and more with -- in terms of making our product available to fans. This year, you saw we have a new product on Apple TV on Friday nights. We have a product on NBC and Peacock Sunday morning. We have done games on YouTube for several years. So we're really leaning in and embracing these new video and digital platforms as a way to connect with fans. We're fortunate that we have -- we play 2,430 games a year. We have inventory to go around. And so we're leveraging that and creating access to our fan base to watch our product.

Okay. So I'm going to shift away because I know a lot of people want to know. And I know there's a lot of questions. We're not -- we can't -- we don't have the time to open up for Q&A, but as you size up the league -- I heard somebody asked you this before, but how do you handicap who's going to take it this year?

Well, so that's the ultimate question you never answer in this job. But what I would say is, interestingly, the first time ever that we've had two New York and L.A. teams in first place this late in the season. So that's been really interesting. I think going into the season, everyone would have told you that the Dodgers have assembled a historic roster. And so I think they'll be a team to pay attention to. They've obviously been successful already. The roster that they've constructed in L.A., I think, is really impressive. And here in New York, the Yankees are playing really, really well. They've always had great offense. And now this year, with Nestor and some of the pitching, the pitching has followed suit. And so the Yankees look really positive as well, which is good for the fan base here in New York and then the Mets with Scherzer and some of the acquisitions they've made have been really strong. So it's -- when you have 2 markets, it's usually rare that both teams, whether it's Chicago, New York, L.A., it's usually one team is kind of in a top position at any given year and it flip-flops, but it's funny to see that kind of both the teams in those markets are really, really strong right now and it will be worth watching for the rest of the season.

Great answer. Thanks so much for spending time with us. Congratulations on all of your personal success and all the great things that you're doing and sharing the vision and technology vision with us and for being our partner.

Yes. Great. Thanks a lot. Thank you, everybody.

Are we jumping right into this? Okay -- we're going to move now. We're going to go -- the mic here. We're going to bring in Joe Vitalone. He is in Portugal. We wrapped up President's Club, there's pent-up demand. We had 2 years where we couldn't take our top performers on the coveted trip, and so we were able to do that. We had double the size and Joe was out there. And then Joe is with our leadership now, our EMEA leadership in Portugal. Just a couple of comments. Joe joined Extreme, it's almost 2 years. As Joe would tell you, in Extreme years, it feels like 5 years. But he's come in and done a phenomenal job. And I -- he's got a philosophy of we call playing over the rim and just making sure that you build a team where you build a team of winners and people are playing over the rim. So he has done a phenomenal job of getting organized, making sure that as we go to market, that we're structured properly to support both our direct business as well as the channel. And he's also built an incredible leadership team also promoting from within. And he's been a pleasure to work with. He's done a phenomenal job. So Joe, I'm going to turn it over to you to talk about just what's happening in the market, demand, why is Extreme winning and why are we taking share? So welcome.

Okay. Thank you, Ed, and hi, everybody. Sorry, I couldn't be there in person. I'm live in Lisbon, Portugal, however, an opportunity to spend -- a unique opportunity to spend quality time with all my leadership that I haven't met in a couple of years due to the pandemic and coming off our President's Club Trip, which Ed and I and others hosted in Florence, Italy, where I got to spend time with all of our top sellers. And so thanks, Ed, for the nice introduction. Again, today is my 2-year anniversary. And when I came to Extreme, I inherited a very talented team. Ed was the acting CRO at the time, and he handed me a very warm seat, did a very good job in that transition. But I came on board right during COVID. The shutdown happened literally the month that I came to Extreme. And the thing that attracted me here was the talent and the people that I would have the opportunity to work with day-to-day. And then obviously, the demand happened because we went from corporate and enterprise where people shifted to work from home, it created demand. And so what I did early was simplified the business. I wanted to make sure that I shored up a few of the big areas, opportunity areas. So I brought on a really strong VP to manage our Asia Pacific region. I separated the Asia Pac region from EMEA, saw EMEA growth because those regions were able to focus locally on their -- on the market. So I brought in a global channel chief that's very impressive that I'll talk about in a minute. And then I added a VP of our service provider business to leverage the relationship we have with Verizon and other big service providers that are coming on board. And then when you have a crisis like we had with COVID or any pandemic, the thing you do is simplify. And so we went back to kind of 3 pillars; protect and migrate the base, move our customers to the cloud, and then build our partner program because we knew that they were going to be closest to the customer. And so we were able to do that. And we saw growth immediately. And so I was able to attract further talent because of the success we had and I haven't had to use a recruiter since I've been at Extreme. The line is long going out the door for people wanting to come to work here. And so success breeds success. And here we are now a couple of years later, and we've got demand that's really exciting, and I'm looking forward, obviously, as we move into our fiscal '23. So let's go to the- Stephen to the first slide. I want to talk about this strength for a second. We have strength in all of our markets right now in our geos -- our geographies around the world, in our verticals, our partner program, we stratify it by growth, diamond, gold and authorized partners. We're seeing a really nice uplift across the board there. And then our customer spend is increasing. The deal keeps making these great products and so our customers spend is going up. We have more deals over $1 million than we've ever had. You can see the trend there. But let me just talk about geography up into the top left there. As a U.S.-based company, it's pretty rare to have a 50-50 split between your geographies like we have. I've been at a lot of big companies, and it's typical of 70-30, 65-35, but we have pretty much a 50-50 split between our businesses. So I'm not really dependent on any one region. In my growth recently, the success has been the same around the globe. We're seeing strong growth in APAC, really good growth in EMEA and the same here in the Americas. And then our bookings by our partner level, I'll talk a lot about our partners, but that's continuing to go up. So let's talk about -- let's go to the next slide just for a second. I want to talk about verticals specifically because this is where we're taking share as we moved away from corporate and enterprise and things pushed to the edge, and companies now are really spending a lot of time working for home. We're seeing strength now in all verticals. Government and Education has always been a really good one here at Extreme, but we're doing really well in the enterprise space. manufacturing, health care, as Ed highlighted, is really coming back, big health care, big hospitals. In addition to Novant that was highlighted, we got extension in Franciscan and in Henry Ford, and we're seeing really good results now in health care. And then retail, which was always a good vertical for us, but was heavily impacted by COVID, especially brick-and-mortar retail, that is starting to really come back. And clearly, online is on fire right now in that one stop. And then sports and entertainment gets a lot of the buzz, but as Ed said, it's only 5% of our revenue. And we've been able to take share because we do really well in these markets. If you wrote -- if you came to the MLB headquarters today from New Jersey into New York or from New York, Upstate New York, Downtown New York, you were working with our customers. New York, Rapid Transit and New Jersey transit all run on Extreme. If you've got a package just sitting at your door right now, delivered by FedEx, Amazon Prime, as an example. I probably have 15 sitting on my door right now in Dallas, all that runs on Extreme. If you want to talk about retail stores, Walmart, Kroger, Wall's, Chipotle, Loblaws, Chick-fil-A, all those retail stores run on Extreme. So it's not just sporting venues, and we're really good at MLB, NHL, the NFL, the Super Bowl, and now dozens of NCAA Division I universities coming online with Extreme. And so as things get pushed out to the edge, as fans want to experience the outdoors and to get out, we're seeing really strong growth and winning against the competition. So let's go to the next slide. I want to talk about this winning piece because this is -- when you're a sales champion like I have been in most of my career, winning is contagious. And we've been winning a lot in our booking strength, our average size of our deals has gone on. I want to give a shout out to Nabil, who you heard talk earlier, we have the sales organization and the engineering team, a very strong relationship here at Extreme, and we give them input and they put together a suite of products now led by the Cloud, which is pulling a lot of hardware along and we've seen a big uplift now in our deal size, into our installed base as well as net new logos. And hardware drags along services, a new subscription. So as hardware and cloud sales go up, so do services and new subscription. And then these growth areas I talked about APAC, yes, it's a smaller region, but we're winning some really sizable deals in Asia Pacific and in our service provider space. And then as a result, our wallet share goes up, meaning that customers are spending more on Extreme than ever before, and we're seeing our new subscription attach rate go up by 32%, for example, year-over-year. 31% of all APs and platform deals now have a subscription tied to them. So if you look at the lower left, that logo is the ministry of forestries and fisheries in Japan, highly contested deal, that's -- this deal will get us into a lot of other ministries, but we were able to win that one against some pretty heavy competition in Japan. Renfe is right next door to me here in Spain. Renfe is the railway system, over 16,000 trains that are all running on Extreme. And for those of you who tiger grads, maybe in the crowd, recently, we just won Auburn University with CDW. And so [indiscernible], that is all now running all on Extreme. So I want to talk about partner and channels. 95% of our business goes through the channel. And so we are seeing really strong growth in our channels. Over 8,000 partners right now selling Extreme. 1,500 of those partners are selling the full suite of our products. And the way that I look at that is that I've got 6,500 other partners that are capable of selling the full portfolio. And so that's one of our priorities this year is to get the other 6,500 to sell the entire portfolio here at Extreme. Right now, 90% of our new logos in our partner -- or initiated by our partner initiated deals. So our authorized partners, our gold partners, our diamond partners are bringing net new logos to us on a record pace right now. And so this is really exciting. And when you look at to the right, you'll see the strata there how our revenues are defined. And so now our resellers are equally as diversified now around the globe, and we're adding a lot of new resellers to our group, especially in Asia Pacific. Some of you may have heard about the Verizon deal, which just did recently, the channel chief that I hired came from Verizon, he was a very senior leader at Verizon. And so we're going to be able to leverage that relationship with Verizon now globally. They've always been a big customer of ours in the data center, their IT department. But now as a potential channel and a future channel partner of ours, we're going to be able to leverage that now around the globe. So that's really exciting for me as a CRO here at Extreme. Next slide, Stephen. So I want to talk a little more about what Nabil highlighted this one network, one cloud-led Extreme, what it means to sellers. And when I meet with CIOs on a regular basis, what they're looking for is simplicity, scalability, flexibility and the ability to have portability in their license and its scale up and down in their business. To me, anywhere means any location, any device, anyway and means that a pilot license now gives them the freedom of choice. And that's something that CIOs haven't had in the past. And that's what's allowing us to win some of these deals that we may not have won in years past. And any cloud means they get to pick which cloud, AWS, Azure, Google or all 3. We'll aggregate all 3 clouds into one. And then any app is that with this new pilot license that Nabil's team, the engineering team now has delivered gives us the flexibility to put on non-Extreme devices. And that's a Trojan horse now that we can go out into the market. And it's a very unique opportunity for us sellers, and we've been leveraging that. And I think that's the reason why we see some of the success we've had recently. So in closing, I would say I want to kind of go back to what Ed highlighted, in the beginning, we were considered a utility or plumbing. This was something that was not strategically important, but the cloud now opens all of that up and the analytics now allow us to unlock the business insights and have those conversations with CIOs around the globe and to really help us now make this digital transformation that we're doing here at Extreme. So I want to thank everybody for coming. Sorry, I couldn't be there, but it's a great time to be an employee at Extreme, a partner of Extreme and hopefully in the -- for you, all of you there an investor in Extreme Networks. So Ed, I'll turn it back to you.

Thanks, Joe. And good luck with the team in Lisbon.

Yes. Thank you.

We're going to turn now to supply chain, which is top of mind for everyone. And Norman Rice, our COO, is going to talk about what we're doing in this environment and how we're managing through this environment and the outlook. And then he's also going to dive into backlog and share specifics there. Just quickly on Norman. Norman has been at Extreme for many, many years and has picked up all the operations of the company, everything. We're talking about supply chain and operations there, all the logistics, manufacturing associated with that, but also our support. And we mentioned before that we're always #1 in customer satisfaction. And so he's got the customer service function. He wears a lot of hats. He's also got marketing. Norman has been the architect behind our sports and entertainment strategy and executing on the deals that you see here. Very talented negotiator and deal person, which we also need in supply chain. But Norman, without further ado, maybe come up and share your [indiscernible]

Thanks. So good morning, everybody. As you may have heard, we have a supply chain challenge out there, and I think it's a topic that people are interested in learning more about. So -- let's go ahead and get started. I'm going to talk to you as Ed outlined, I'm going to cover not just the -- we're not going to address the macro issue of how we got here. It's a fascinating story. We can cover that at a different time. But what are we doing about it? How does it impact the Extreme today? What are we doing about the tactical level? And then what's our outlook? And why do we have confidence in how we go forward. And what are those drivers? So first off, what are we experiencing today, chip shortages. So when you hear this broad category of chip shortages, it's not just a microchip is a microchip is a microchip. There's 2 different kinds or there's many different kinds, but there's really 2 different categories. For us, there's a primary with our Broadcom microchip, and that's why we emphasized we have a strategic partnership and relationship with Broadcom. We emphasized the strength of that. We've been able to address that issue with Broadcom. So the issue with Broadcom presented itself about a year ago, over a year ago. We started to get ahead of that, we worked out a relationship there and really put ourselves in a great position to manage through our Broadcom, which is call it the biggest component in our switches and in our access points. So we've been able to establish a nice line with Broadcom that's given us that outlook there. Now you get into the secondary and tertiary part. So the issues started to present themselves in these secondary and tertiary parts several months later. And we're now coming up on almost a year lead time as those start to come to resolution. And what we're seeing is there's a lot of unpredictability that's going on in that secondary and tertiary market. However, there are things and there are signs out there that are giving us confidence that things are going to start to come together. One is the timeline. So we've been at this, as I mentioned, we're coming up on that year timeline for those secondary and tertiary components. The second part is we started hearing this a couple of months ago, but consumer electronics were all competing for the same secondary tertiary parts. Those are Texas Instruments. They're Altera, Microchip, the list goes on. And what we're seeing, and we started to hear was that consumer electronics was starting to slow down. And you saw an announcement that there was an article yesterday, HP Inc. and Dell, both are cutting back on their PC outlook. And why that's a good thing for Extreme is we're chasing the same components. And so the production and the capacity has not gone up yet. There's a lot of promise about new factories and new capacity coming online in the near future or in the future. But the capacity even at a fixed state, when you start to see reductions in certain categories like consumer electronics, that means the availability for us. So what does that all translate into? We're expecting that around July. Throughout the entire fiscal '23 for us, we're going to see incremental improvements because of the backlog, the time, the volume, all those elements. And then starting in July, we'll start to see this move back to normalize. That's sort of the book-to-bill we transition to the book-to-bill balance and then we expect to go through the backlog throughout our -- through '25, which I'll walk through in more detail. So that's on the chip side. Lockdowns, you hear a lot about COVID lockdowns, they're rolling. They're all over the place. There's no predictability, a regional shut down. There will be a political reason, there'll be a COVID lockdown. There'll be lots of things. What does that mean? And what does that translate to? It impacts organizations in 2 ways: one, logistics and the other's production. So if your production facility can't be, call it, have manpower to work through that, you have an impact. If the logistics are disrupted, you have an impact there. Fortunately, we've been able to manage and navigate through that and had minimal to no impact from these rolling lockdowns. And most recently, the high-profile one is Shanghai. And we had no -- limited, no impact. There were some logistics disruptions at ports, there was logistics in terms of transporting goods. But it happened so late in the quarter for us that it had no impact, and we've been able to navigate through that for this quarter. So cost pressures. So we look at cost pressures really in 3 ways. There's the general inflationary cost pressure. So that's the rising tide of goods and services and all of the elements that we see every day, those component costs have gone up. TSMC came out October, said, hey, we're raising price by 20%. Broadcom followed right away, and you saw a tide roll from there. We've been able to absorb that and manage through that through our own price increases. So the market has bared that, we've been able to keep that. There's another element to -- the second element to cost pressures is a variable cost pressure. The variable cost pressures are from expedite fees or broker fees. And those are a direct reflection of supply demand. Right now, it's highly variable. It goes up very fast. It goes down very fast. It all depends on supply and availability. And when you see something encouraging, like the slowdown in consumer electronics, you're going to see a flood of elements into that broker market, and you'll start to see some stabilization. We do see and we have seen some of our expedite fees start to come down. These are again leading indicators of what we expect to see. And we see that to really take effect in June of 2023, and then materially or gradually through our fiscal '24 and then materially in our fiscal '25 have positive impacts, which Rémi will get into the specifics. And then finally on this, we also look at our build plans and how that impacts. So again, as I've mentioned, we've been in this challenge and in this position for well over a year. And so our build plans and all of our tactics change. And we changed where we changed our buying patterns, we changed our securing logistics patterns. We changed a lot of our patterns. And so we expect, based on the volumes we're seeing, the volumes we've had on order and what we're moving through. And as Ed said, when you have a much higher backlog number, your target list is $426 million versus $30 million. There's not a lot of guessing that goes on. So you can target it. Quick note on that or a fun fact is that we have over $150 million waiting on 10 to 15 parts. So it's a very isolated set of elements. In fact, $40 million is waiting on one part. And that's one Texas Instruments part. And that kind of -- when you can -- when you have that precision, where we can lock in and chase that one part and find lots of different tactical ways to do that, we then have that confidence on releasing that backlog. So with logistics, logistics are impacted. So our target for logistics is really 75-25. That's what we were doing pre-pandemic, 75% by air which is movement of transport of goods from finished goods from the factories to depots and then distribution out to customers and 25% by water or by sea. That's the optimal element that we've seen in terms of our ability to move goods at the most competitive price or the lowest cost for us. Today, what we're experiencing is completely the opposite. It's 100% air and it's actually exacerbated. It's 100% expedited air, which means it's a cost on top of a cost. Why is that? It's a couple of things. Number one, it's the result of getting products and finished goods. Those -- that one part I was talking about getting it into the factory quickly, that production run happens, it's happening near the end of the quarter. It's all these timelines. So you have to expedite it out to get it to the customers in time. The second reason is there's reduced capacity globally. So when the pandemic happened, it occurred, transportation lanes were shut down. The simplest thing to think about is passenger flights were canceled, lanes were closed and a significant portion of cargo moves on passenger flights, the Trans-Pacific flights. So those lanes are not only closed but reduced and that reduced capacity overall's driving costs up. So as you look forward, as you start to see and you can correlate this, when you look at our industry, other industries, you can start to correlate as more passenger flights are happening, expedite fees will come down because capacity goes up. So it's a function of that. And we've seen some leading indicators of that as well. In fact, this is a daily, weekly moving variable, but we've seen our leading indicators even this week, we're starting to see some cost relief, if you will, in some of these rates. There's a lot of seasonality traditionally to these. But right now, what we're seeing is it's been a sustained high cost. We're starting to see some of that come down. So what are we doing at a tactical level? My colleague, Nabil, was talking about being maniacally focused on the technology world and Ed says we're galactically focused and tactical on how we execute against the supply chain challenges. But what I can tell you is that I couldn't be prouder of our teams and all the cross-functional efforts that are in play to be able to be here and have the confidence in the outlook and what we're doing. And it's really because of how we're tactically executing. So we're out-maneuvering our -- as best we can, but we're out maneuvering out in the market, and that's why we're seeing this and feeling this. So first off, we set up a cross-functional task force. This is unique, it's multicompany where we own and communicate with secondary, tertiary, multiple suppliers. Everybody is working cross-functionally cross-company where normally, we don't have those types of relationships. And our teams are able to optimize and move parts around and be able to line up with production or change production. So that's what the task force does. We also are constantly optimizing our systems and our processes. So whether it's a development, whether it's a production process, how do you run that process, how do you do it more efficiently? How do you logistically move elements so that we can line up and it's -- and we align everything to have the best outcome. And that's really the result of the task force, which then they run it daily, they run it hourly and we're constantly out there coming to markets for opportunity, and you'll see some of those. So the byproducts of that are reengineering. So we've completely revamped and expanded our reengineering process on our hardware and the support from the software teams to make that happen. What does that translate to? Components. So we're able to substitute components. That's what it translates to. So an ordinary course, we would engineer for process and price efficiency. We bring the cost down, and we do maybe 10 to 15, call it, elements or components in a given time period. What are we doing today? Over $150 million. And so our engineering teams are working very hard to qualify second, third, fourth, fifth sources for every single item in our products, and we're designing our universal platforms forward are all designed specifically for interoperability. What does that translate to in the future? That means we get a lot more flexibility. So if one area opens up and it's one vendor versus another, it doesn't matter, we'll be able to swap this in and out and be able to move quickly and adapt to that. So that gives us confidence in that outlook because we're reengineering parts and products. We're also putting out new products into the market. So BLE probably heard about this. Bluetooth technologies are very scarce right now in the market. And there's a lot of reasons for that. But we've gone ahead and worked with our PLM teams, our engineering teams and put in new categories of products that have Bluetooth but non-Bluetooth options. And we're seeing that uptake because of availability and interest and time and demand to move those products through. And you'll see an entirely complementary aspect to our portfolio to do that. Supplier relations. Ed talks quite a bit about this. This is key. We've been working, as I mentioned, our primary's Broadcom, we're aligned at the highest level with Broadcom. You can't -- for us, that alignment has been outstanding for a number of reasons, but that's been key and critical for us to move forward. We then had to work and change our tactic and start working with our secondary and tertiary suppliers. What does that mean? Think of a power supply, the TI component in the power supply, we're working with that company, the Power Spy Artesyn as an example, and we're working to get the TI component with them. We're working with the TI folks and elevating our role so that we can escalate and get pull-ins, get the allocations for our projects around our task force. So it's something that's going to pay dividends, and it's been working out as we go, and we continue to build so we can have that in place for the future. And then finally, innovation. So on the task force level, the innovation is the task force has come up, and as I mentioned, cross-functionally. So we came up with a machine learning tool to go out and look for real time, look for parts, whether they're in the broker markets or they're on the actual retail sites, finding those parts ahead of others to try to pull them in to our efforts. We have -- we've set up and built automation so we can do direct from factory shipments to customers. We've gone ahead and change policies. So we went to no partials, for example, no partials to prioritizing partials. So if you're a partner, we prioritize and we went out officially in January and said we will prioritize a partial order accepted versus a nonpartial. And what that does is that puts the message out into the market, but it starts to change behavior at the distributor level and it changes behavior of the partner communities to accept partials and then change their plans on how they roll out projects. So we're out there talking to customers, partners plan ahead, roll it out in stages, do it at step, step, step. And if you plan like that, the partial works and you can roll out your projects over time. So let's take a quick look at -- or a deeper look at the backlog. So we have record backlog, $426 million is the backlog. How do you break that down? How do you look at it? Well, first, it mirrors our verticals. So there's no one vertical that's over rotated on. There's no one category that has more challenges than others. The second, which I'll draw your attention to the far right is the types of products, which is it's predominantly our universal. You heard Nabil talk about that. The Universal is our current generation. It is the latest generation. Why does that matter? It's on the newer microchips. And we're in a natural market transition, 28-nanometer to 16-nanometer and smaller. You may hear this from others, but the 16 and smaller nanometers are less constrained than the 28, the 40 and the older technology. So we believe, first, it's a future proof, but second, that aligns with the component piece that I was mentioning before, where we have $40 million, for example, in revenue, that's held up by one part. But you see that in the Universal side. So let's talk about in the middle. This is a bar chart that shows customer request date. What is that? When an order is placed, there's a specific request date. Now we've been out there preaching for over a year, please order ahead, 6 months, best visibility, what could you do? Well, that has translated. So 20% of our backlog is future court orders. It's 20%, you see as pretty evenly distributed throughout time. So a couple of things about that. One, it gives us better visibility to the future. Two, it's not significant in terms of the impact of $426 million, 20% of it is spread out over 4 quarters. And the majority is requested this quarter. It doesn't mean we can deliver it this quarter, but that's how it lines up. Now the visibility, we have visibility at the deal level for every single deal in the backlog. So when you look at the profile of the backlog that we have, it's 10 to 15 -- 85% to 90% of our backlog is directly tied to an end customer order. 10% to 15% is ordinary course and that's exactly what we're seeing with our distributors, just ordinary rotations happening globally. And we have distributors with different motives for that. Some are trying to take share and some are doing different things. Now that helps us. As we look at the market, some of our competitors have focused on, call it their top customers. We see this as an opportunity with our distributors and a few of our distributors see this as an opportunity to go out and take share of the mid-market, of the enterprise market and of the long tail, the so-called long tail in the space. So we've been working that kind of a strategy with our distributors and our customers as well. So at that deal level, we were able to say and communicate that we have less than 1% cancellations. Remember, our policy is we don't accept returns. We don't accept cancellations, but we've had less than 1% that we've experienced out of this $426 million. All these numbers, by the way, are what happened at the end of the snapshot as at the end of Q3. We're not seeing double ordering. So our process we know deal by deal and how we register deals with partners and with our own teams, we're not seeing any duplication. And we're not seeing -- as an example, the New York Yankees and the New York Mets, they're not going to order twice. That's just not going to happen. And if you look at the profile of our customers, we have all the verticals that we're in, we're not seeing that double ordering. And I can say that because I can see it down to the deal level. And then -- yes, and -- and that was kind of the category just a look there. Finally, let's look at what's the expected road to recovery. So you've heard a lot about lead times. This chart is a finished good lead time. This is based on true numbers. And what we see and what we're experiencing, there's a difference between a component, getting components and then delivering finished goods. Our finished good lead times are improving because we've been in this for over a year, and we're going against a set volume that's much more significant. And it's going to -- as Ed outlined, you're going to see a step function of improvement throughout our fiscal '23, and you're going to see a more material improvement in our Q4 of '23 because of this visibility, because of this reduction in the finished good lead times. And then you see we expect this to normalize through 2025 -- our fiscal '25. And what that means for us, what's normal, 80-20. And that is normal, meaning 20% is typically backlog, 80% is typically what's delivered. And so we do cross that -- we expect to cross that book-to-bill threshold in our fiscal '24 and then we expect the backlog to normalize because of market conditions and other elements and our ability to produce. So that is our snapshot of supply chain. And Ed, I'm going to hand it back to you.

I'm sure there'll be some follow-up questions coming up. And now we have Rémi, who is going to come up and talk about the financial picture and outlook, and he's going to put some numbers around all these things that we've been talking about. Quickly, Rémi is almost 4 years at Extreme. He's definitely made his mark in terms of all the improvements as far as our financial teams, processes and our ability to understand what's going on in the business and our confidence in our ability to forecast the business. But Rémi, I think everyone is looking forward to hearing what you have to say.

Thank you, Ed. Too kind. Before I jump in, I do want to highlight the very strong partnership that finance has with Norman Rice and his team. We've been navigating through supply chain challenges for about 5 quarters now, and we really stepped up the level, understanding what's happening, improving forecast accuracy and hopefully, delivering the best outcome, but Norman is more than that. He's also a trusted adviser to me. For example, last night over dinner, he's like, are you sure, you want to jump in the financials, cold? You might want to crack a couple of jokes to relax the audience. And I said, are you sure? He said, yes. Otherwise, it might sound a bit dry. So he told me a couple of jokes from his cousin in Boston, and as on my way back to the hotel, I was like, for sure, this is going to spice it up, but these days, you've got to be careful. So I call my daughter. She's a junior in high school in California and run the jokes by her. She's always been a good sounding board. She said 3 things. Dad, not funny. Very offensive. And I don't know about New York, but in California, you would certainly get sued. So I think I'm going to stick to financials, but for those of you who'll stay at lunch, Norman is going to be around, and I'm sure he'd be willing to share those jokes. Before I jump into the numbers, I'd really like to sort of give you the lay of the land of where we are today, why do we feel so strongly about the outlook and help you understand the operating model. And I'm going to repeat a lot of step that was said, and number one thing is, as of today -- and we're halfway into the quarter, the trends that we highlighted when we reported our Q3 earnings in terms of the strength of bookings across the verticals where we operate as well as the geographies we operate, and the momentum that we see around our product range remain really strong. I think it's fair to say, based on what you just heard from Norman that from a supply chain standpoint, we've been executing well. And in spite of us being constrained in terms of top line, if you look at the first 9 months of the year, look at our revenue as well as our margin is the highest ever achieved in the company's history. And obviously, it could be much better, but we're continuing to make progress. The second thing I want to mention is, the outlook is strong. No matter how you feel about the economy and some of the geopolitical constraints that we see and the lockdowns in China, that backlog of $426 million. And by the way, there'll be a quiz at the end to make sure you all remember because I think it probably was mentioned 10 times today. Gives us great visibility in terms of the product revenue throughout fiscal '25. In addition to that, we've got this strong growth in subscription bookings, which is going to compound with the deferred revenue that's already sitting. So we build our customers a lot for the subscription. That's $143 million, which is sitting on the balance sheet waiting to be recognized. And obviously, we mentioned this telco equipment maker, which should remain nameless, but it's Swedish, which is going to give us a nice growth opportunities in 5G. We're currently seeing incremental revenue this year compared to last year of around $20 million, and that will accelerate to between $50 million and $100 million as 5G is being rolled out. How does that translate into the operating model? Our gross margin is currently depressed, and I'll talk later about the significant upside that we see just from being able to reduce the expedite fees and the additional freight costs that we're currently paying for. We'll obviously see a change in the mix because although, as Ed mentioned, the recurring portion of our revenue, which is support and subscription as a percentage of the total may not increase dramatically because of the momentum in products, the mix between subscription and services is going to shift over to subscription, which carries higher gross margin. And that topline growth that we called out to be in the mid-teens will obviously continue to drive operating leverage. So I want to introduce all that. I also wanted to do a look back to what we said about 1.5 years ago and what we've achieved. Ed already showed this was our guidance since February of 2021, and this is where we are today. So if you look at the subscription, we said 25 to 35, we're at the high end. But really a surprise came from services, which is at 7% versus and 3% to 5%, and products where we're at 8%. We could be much higher, but at the time, we called 4% to 6% growth. Switching over to profitability metrics. We said we saw gross margin by fiscal '25 of 63% or 65%. We're at 59%, and I'm going to explain in the minute that all of that is really related to supply chain. OpEx, we said 46% to 49%. We're at 46%. And finally, free cash flow -- sorry, operating margin, we said 15 to 18, and we're at 12. So we're on the right trajectory to get to what we said about a year ago. Free cash flow has been a bit of a disappointment. We did really well in the first half. We had set a target of 11% to 13%. Right now, we're at 8%, if I look at the first 9 months, and that's really related to the fact that we're very back-end loaded in our billings. So a lot of what we build is shipped in the third month of the quarter, which in turn make it harder for us to collect, which is why you've seen a disappointing performance from the DSO. But as we grow the top line the way we expect to grow, you should see a very substantial improvement in free cash flow, and that's what gave us the confidence to announce this morning a $200 million share buyback. So that's also what gives us the confidence since we reported earnings to go and buy $20 million worth of our stock at an average price of $9.75. So please make sure you keep the stock price above $10, so we can have a good VWAP at the end of the quarter. We introduced this slide a couple of quarters ago to give you good visibility as to the progress we're making in our subscription business. So we have this annual recurring revenue just for subscription, different from what Ed showed, including support as well. I just want to mention that in 2018, our SaaS AR was 0. We did have a software business, but it was sold as a perpetual license, and the combination of what we did annually was about $20 million for license, $20 million for support. So it was $40 million in total, only 4% of the company's revenue. As of August 2019, when we bought Aerohive, the SaaS AR, at the time was about $40 million. We're not quite at $100 million as we speak but we'll be crossing the $100 million mark sometime during the fourth quarter, which is a 2.5x increase versus what it was when we bought Aerohive. And as a CFO, I obviously take comfort in knowing that I have this $143 million of deferred revenue, which I know is going to be recognized based on the waterfall of the contract durations that we have with our customers. You've seen this slide. Ed showed it. I'm going to spend more time on it. If you were to remember one slide out of my presentation, this is the one. Let me go back to fiscal '20. The small number that you see with the differentiated blue, that was our backlog. It was published in our 10-K. We publish it once a year. It was $32 million. So our backlog, as we started a new quarter, was a few tens of million dollars. And that's basically what was booked in the last week of the quarter that we didn't have time to turn around and ship out to our distributors so we could recognize the revenue. That was it. Fiscal '21, we emerged from COVID, so our bookings grew significantly. For most of the year, we were able to ship all that, and in Q4 fiscal '21 is when we saw the first supply chain issues. So we exited '21 with about $100 million in backlog. Everything has gotten worse since the start of fiscal '22. Our booking strength has been spectacular with growth in products in certain quarters in excess of 50%, and we've been heavily constrained. We're at $426 million today. That number by the end of the year will be even higher. And then as you heard from Norman, things really start to ease up sometimes in Q4 fiscal '23, which means that the first quarter where we're technically completely free of any constraints is Q1 of fiscal '25. But in fiscal '23, you should be expecting us to continue to see a book-to-bill of above 1. Now I'll say that we exit fiscal '23 with a backlog of somewhere between $450 million, $400 million and $500 million -- $450 million to $500 million. And we go back to a normal backlog, which is less than $100 million, let's call it, $50 million. That means we have to walk -- release $400 million of backlog. That's probably going to happen over a period of 8 quarters. So you're looking at $50 million of backlog every quarter that is going to come out. Our product revenue today is around $200 million. So 50 divided by 200, it's 25% theoretical growth. So I'll talk later when I provide the guidance of how we talk about mid-teens growth overall for the company, which is 13% to 15% product growth, but technically, our growth rate in fiscal '24 and fiscal '25 should be higher. And the only way it's only 13% to 15% is if our bookings go down. And we're now making prediction looking at various scenarios but right now, the trend for our bookings remain positive. I want to talk about subscription and just piggyback on some of the stuff that was said by both Nabil and Joe. We have sort of 3 growth components for cohorts. First one, cloud management. This is what we sell today. It's XIQ. It's basically sold for wireless and wireline. 100% of our wireless portfolio has been, so to speak, cloudified. So either of those are cloud-based access points or the controller-based access points, but we still have a license to help you manage them from the cloud. The attach rate on those on a unit base is 90%. So for 100 access points that we sell, in 90% of the case, customers are buying a license. And we have pent-up demand in there because today, we can't deliver these access points. So a lot of the business partners or the customers are placing the order for the access points, but they have not yet placed the order for the subscription because they don't want to stop paying now when we might deliver this access point a few months from now. So that's one driver of growth. On the wired side, you heard Nabil say that 65% of our product portfolio has switched to universal, which is cloud-enabled natively, and guess what, we give out the first year license for free. And then it's our job, obviously, to make sure they renew and they're actually using the product, hence the investment in making customer success. So the combination of these things is going to help drive what Nabil referred to as the average revenue per account as we're growing the volumes, as we're migrating from our Gen 2 products to our Gen 3, which is Universal, and driving cloud adoption. That's going to be a first growth engine. Second one is renewals, migration, additional subscriptions. So that's more like the average revenue per user that Nabil talked about. I have deal desk in finance, and obviously, this is a part of the investitures and sells ups. But I approved a lot of the DAs, and we systematically -- when a customer sign for subscription 1, 2, 3 years ago, and they're about to renew, we're systematically driving for an increased price. When it comes to new customers, by the way, the same deal that is systematically pushing to sell XIQ. And a salesperson in Salesforce has to explain why they haven't tried to sell XIQ or why they were not able to reduce the discounts on XIQ they sold it 3 years ago. So we're really pushing that behavior. And obviously, you're going to see now us pushing for pilot -- sorry, CoPilot. If the customer has a pilot, the navigator, we're going to start upgrading them to CoPilot to drive this opportunity. And the third one is really the acquisition of Ipanema and it's the one edge. So to give you a different flavor, if you think about where we are, this is ending revenue as we exit fiscal '22. It's not ARR. So we should be at around $82 million. The 3 growth components, 20% should be coming from XIQ new; 40% is that renewal effort, reducing the discount, upselling to CoPilot, selling more licenses; and another 40% will be coming from one edge. I want to mention the average contract length. I already talked about the attach rates and the wireless attach rate. The reason is 1.5 to 2 years. We used to push for 5, sometimes more years. A couple of years ago, we moved to 3 and now we're looking at closer duration that enables us to renew more often, and therefore, reduce the discount as we renew and upsell to customers. And what we saw also is when we were selling 3-year license, a 5-year license, the sellers tend to discount them more. Whereas if you're selling a 1.5 to 2 years' duration on average, you don't give as much as a discount. So that's an important component of driving the ARPU. I mentioned and Norman talked a lot about supply chain constraint. Just to give you an idea, when we start the quarter, we have what we call the standard costs, which is the build material of a switch, how much we pay for the supply chain, how much should we pay for the components that go into the switch. We know how much we pay ODMs, how much it's going to cost you assemble the switch. And then we look at something called PPV, purchase price variance. And what is that? It's simply the difference, the unexpected. So what happened during the quarter that was not already built in our standard cost. Right now, that PPV is $15 million to $20 million per quarter. So it's about $19 million a year compared to of $1.1 billion in revenue. That's about 8 points of gross margin. That is huge, and it's mainly the fact that we have to go to expedite these to Broadcom, buy components on the broker markets and pay more to ship our products from Shanghai to El Paso and then from El Paso to the warehouses of our distributors. We're not going to get everything back. Some of these purchase price variants are actually going to move up to our standard cost because TSMC, Broadcom are raising the price of the components. So we factored that in. But as those onetime items, which is the bottom of the invoice surcharge or expedite the freight costs that we're paying go away, we're going to be getting 9 points of gross margin back between now and fiscal '25. Next one is the services and subscription gross margin. The improvement that you see here, which is 3 percentage points, is largely driven by the change in the mix. So we don't expect our support business to generate higher margin, but today, there's about a 20-point difference in gross margin between legacy services, which is support and maintenance and subscription. As we grow the subscription faster than services, we're going to get a 3 percentage point improvement. So we've been not quite at 70%, but certainly, in the high 60s. And so the combination of these 2 take into account that support and subscription is about 30% of our total. Product is about 70%. That mix is not going to change dramatically because product is growing so fast, means that you should be expecting us to generate a gross margin of 65% by fiscal '25. So how does the P&L look like? You should be modeling that our cost of goods sold, with what I just said, drops over time to 34% to 36%. R&D today is around 16.5%. If I think the first 9 months, we expect it to stay there. So not a huge amount of opportunity leverage. Why? Because we're investing heavily innovation to support the growth of our subscription business and continue to migrate the rest of our portfolio, which hasn't already to universal and start thinking about what we call Gen 4, which is what comes after Universal. And also, we're making dedicated investment to support our 2 large customers in 5G. Sales and marketing is also today running in that same ballpark. We're investing in the channel. You heard Joe mention that. We have tremendous growth opportunities in APAC, where we have a great leader. He has put a great strategy in place, and we're supporting some of the investment that he's making. We obviously have to enable ourselves to sell SD-WAN so we help them migrate towards XIQ now. The name of the game is for them to start selling SD-WAN, which is a new product. And we're investing heavily in customer success for the reason that I just mentioned. Customer success drives retention rates. Our gross retention rate, Nabil said, is 90%. That number could be higher. Our net retention rates should be above 100%, if we're able to upsell CoPilot on top of the things. So we have to make that investment in customer success. Unfortunately, for Christina, who's my Head of FP&A; Lily Kang, who's my controller, 2 phenomenal professionals that support me, we're not going to be investing a lot in support functions. So finance is going to be the poor child at Extreme. So will some of the other functions be, Cathy is driving phenomenal savings in our real estate footprint. We intend to do a significant reduction of the footprint given that we have a flex first model today. So you should be expecting G&A as a percentage of revenue. Currently, it's peaking 4% and 5%, but we're trying to drive to above 4%, which would take the overall operating margin between 18% and 21%. To sum up, and I've got 40 seconds left. Product is going to grow at a rate of 13% to 15%. If you actually spend some time on the model and you actually run the math of that backlog of 400 times 8 quarters, see what it looks. You should end up with a higher rates, but obviously, we want to be careful in our guidance. Services 5 to 7. Subscription, a year ago, we called 25 to 35. Now we're calling 35 to 45 with Ipanema, and that gives us total topline growth of 13% to 17%. Operating margin of 18 to 21 and massive free cash flow of 15% to 18%, which makes us confident, we can continue to pay down debt and return cash to shareholders under the form of share buyback. We'll continue to maintain CapEx at a low rate of 1% to 1.5%, and we're basically entering a phase of unprecedented growth in revenue, margins and cash flow. With that, I'd like to turn it over to the Q&A session.

All right. We're going to bring up the full management team here, hybrid fashion. So we've got the management team in the room and then our teams are members joining us virtually. So why don't we kick it off in the room? Open it up here. We've got plenty of time, and then we'll do some more questions from online. So go ahead.

You just talk about the role of pricing. I didn't hear much about that all day. I guess pricing in your product and then what you're seeing in terms of pricing umbrella by others in the space? And then how your pricing compares to the pricing of your input costs?

Yes. Thanks, Andrew. So, what we've done is we've been able to raise price, and we've had to do that to mitigate the cost elements that Rémi and Norman described. So at the very beginning of the year, we had a very modest increase. In October, we raised again and then we had another modest increase here in April. Fortunately, the Cisco market share leader has been raising price more aggressively. So that umbrella that you're talking about, we continue to stay under Cisco, and we stay under Cisco in terms of our pricing strategy. So that's -- and we'll continue to look at that very closely. As Norman mentioned, we're starting to see some relief in terms of some of the transportation logistics. At this stage, we don't have any planned price increases -- incremental price increases. But at this point, we're very well versed at this, going back to the time of tariffs, et cetera. So if we need to, we can adjust very quickly to raise price.

Do you have any sort of any concern that the gross margin forecast could be upset by price increases from suppliers as you go forward?

I mean the question is, are we concerned about price increases -- further price increases from suppliers to impact our gross margin outlook. We can be very flexible, and we have been flexible. And so to the extent that something changes, we will -- we can adjust accordingly is what I would say. At this point in time, our outlook is that we're actually going to start seeing price reductions, if you will, given where we are.

If I can just add one thing. When I showed the gross margin, all of the improvement is coming from the reduction in expedite fees and supply chain costs. And I didn't mention any improvement related to price increase because the way we design our price increase is to offset the actual increase in the list price of components. So when Broadcom announced that they're going to raise their price like they did in December, TSMC, like they did recently, we basically offset that with our own increase in this price. And then the name of the game is obviously through the deal desk that is supporting the -- some of the deals I approve myself is to make sure that those increases in this price are not discounted away with a higher discount so that we track that almost religiously every quarter. And so far, we've been able to hold the line. So we neutralized the impact of the price of components, and now what we have to focus on is eliminating the expedite fees and those extra freight costs. And that's why we show that improvement. So this supposed to be neutral. And if for any reason, Broadcom announced a new price increase, we'll probably follow suite.

Woo Jin Ho from Bloomberg Intelligence. So what is -- Campus are at switching rank in terms of spending priorities for your enterprise customers? And I ask this, it used to be a commoditized product and a mature product and it was lower. So whenever spending was tighter, it was one of the first thing that was shelved, right? And I know that you have a lot of activity in bringing things to the cloud, but my concern is that on the other end of the spectrum, the moonshot deals start to be shelved as well as spending gets tighter. So are you guys in that sweet spot, given all of the initiatives and the products that you have? Or can that be pared back? Or is there a risk of paring back in the tighter spending environment?

Yes. I mean, Nabil, I don't know if you want to chime in and comment.

Yes. No, I definitely would. So thank you for the question. I would actually say that in the current scenario, we are having the reverse impact of what you were kind of talking about because think about that there is a little bit of the spending challenges that you were talking about. In a normal environment, what you described that people like, oh, you know what, I can replace that switch later. That's what we have seen in previous cycles, but this cycle that spending concerns are aligned or are happening at the same time in a post-pandemic world. As we were talking about earlier that in the post-pandemic world, the way that enterprises are changing their digital transformation, which is really truly centered around networking and on connectivity -- secure connectivity is at the top of the mind. So instead of that being pulled back because of spending, we are actually seeing acceleration of that. So some of the projects that are nonnetworking are actually being shelved in support of spending on the network side because in this distributed world, connecting -- securely connecting people is absolutely critical, right? So that's the impact that we are seeing. So we are actually on the benefit side of this equation in this cycle.

Yes. And I'm just going to add to that, Nabil. It's -- the network has become very, very strategic and just take the verticals that we're in, take the venue we're in, the pandemic changed the outlook, change the behavior, change viewpoints. And it accelerated lots of different technology initiatives that were underway. But what organizations were facing was nobody in a hotel, nobody in a sports venue, no automation. You can't continue to kick the can. No students in the building. Nobody in a hospital other than COVID patients. How do you sustain the business and you can't. And so what came out of that, the realization of organizations and it happened globally, and it happened across all the all the verticals that we serve almost simultaneously is, we can't continue to push out or shelve the project. We can't. We're investing because the network and all the elements that run on it, the behavior and the requirement has changed. It's changed in every single vertical in some way, shape or form. And so that investment, that 6E investment, that cycle we're in is 100% the cycle that we're seeing. You look at the buying behavior of our customers and the proof of who's buying and at what category we look -- we've analyzed our installed base. We've analyzed, is it our same customers buying more? Is it -- do we have more customers buying less? What's happening? It's our customers. The same counts to customers are investing and building out new projects, and they're happening at accelerated rate.

Let's go to Alex at front.

Great. Two quick clarifications. You said $143 million of subscription is waiting on product backlog. You talk about a $400 million backlog. Is the $143 million in that backlog? Or is that in addition to the product backlog?

So the $143 million is actually deferred revenue that has already been built. We've got the bookings. We build the customer for a 1-, 3-, 5-year contract. We just have a waterfall on how we're going to recognize that revenue. That's kind of done. It's waiting to be recognized. What I mentioned, when a customer places an order for a while is access point and they're not getting it for another few months, that sort of pent-up bookings. We haven't gotten the bookings but we made an estimate between services and subscription is around $70 million. It is not in the full $26 million. It would be additive, but that's an approximation.

You said 17 or 70?

7-0. 7-0. But we -- this is not an auditable number. We just have a rough estimate because we're kind of guessing what that number is, but it has to be added to the full $26 million.

Got it. And then the second question. You said 9 -- or clarification, you said 9 points of benefit. But then you also said that -- or cost that you're absorbing, but you also said that some of that was going to go up in subscription and then you went back and said 9 points would be a benefit. So is it going into your standard purchasing price or not? I'm a little confused about...

Yes. So sorry, so I said that if I look at the expedite fees we pay to Broadcom and others just to get chipset to ODMs is around today $15 million to $20 million, and there's another $5 million of freight cost. So if you take the middle point of the $15 million to $20 million at $17.5 million add $5 million, that's $22.5 million. Take $22.5 million times 4 quarters, that's about $90 million of additional costs that we're incurring today that we should not be incurring, and that's what's going to disappear over time. And then what I mentioned on subscription is simply that it's a 80% plus gross margin as it grows as a percentage of our services and subscription revenue, which is 30% of the total, you get that additional benefit. Mix the 2 together that's how the gross margin goes from 59% to 65%. So those were 2 separate comments.

Great. Thanks for the clarification. The question I wanted to ask is on EMEA. Obviously, the war, inflation in oil prices, rising interest rates, shutdowns in Europe, currency impacting them, they're getting slammed on every front. You can imagine you've got a huge exposure there. Can you talk about how customers are reacting to that relative to their demand in a context of not being able to buy product and have it delivered in a timely fashion. To what extent is that a mitigating factor that keeps them from backing off of any of these projects? Or alternatively, maybe it is -- can you...

Joe, do you want to feel that one?

Yes. Well, we haven't seen that yet. I mean our pipeline is still very robust, and we're not seeing customers or partners, frankly, backing off or any behavior that would lead me to believe that, that's going to be the case. Obviously, the war that's going on between Russia and the Ukraine is unsettling and causing a lot of angst but people are turning to our technology is a way to continue driving growth in their own businesses. And so it's you could look at it both ways. It's a bit of a growth driver when it comes to -- people are traveling less, so they're doing this more. People are not renewing office space. They're spending that money on technologies like ours. And so all of those are creating a new demand in areas. But we watch it very closely, but I'm bullish on what I'm seeing out of our partner community, our DiSTIs and frankly, our customers.

If I could just -- if I could add to that, our forward view, I made the comment earlier, snapshot this time last year looking forward versus snapshot 4 quarters forward, and we're up in the mid-teens. So yes...

If I can just add one thing. You've seen the dollar strengthened versus the euro. Our functional currency is the dollar. In other words, when we look at a discount approval, it's based on the dollar price. So that means that our customers, when they actually end up paying our bill, they basically suffer from the currency fluctuation that we've seen up the prices of our switch become more expensive. I keep asking to John Morrison on every Monday call when we do our sales call, is he getting feedback from sales that we need to give an additional discounts to compensate for the fluctuation in the currency, and that's not the case. And here is the main reason why the people we compete against in almost 80% of the deals that we have to approve for Cisco and HP, and they also sell locally in functional currency. Now the customers can have an alternative to go to Huawei and some of them do and maybe they get a better discount, but for those customers who are not willing to do business with Huawei, we're not seeing an impact from the strength of the dollar today. And we're seeing a benefit because 7% of our OpEx is euro-denominated, and so that's going to help the cost structure, which is why I talked about the guidance I gave for OpEx.

I'll go on in the front of Eric.

Yes. I can't recall if it was bookings or the revenue growth on the subscription side, but there were 3 buckets essentially. There was the new, the renewal and then the WAN-Edge. I'm just curious to know given the nascent state -- maybe not nascent, but the relatively lesser amount of experience that you have on the WAN-Edge side, what kind of pipeline visibility do you have that gives you confidence in that subscription growth on the WAN-Edge?

Nabil, do you want to jump in here?

Yes, I can definitely do that. So great question. So I'll answer it in a couple of different ways. So the first part is that while the SD-WAN portion of the portfolio for us is new for Ipanema in the last one year, but we have been playing in the branch market for a little while. Our wireless has been deployed heavily in the branch environment as well as in the home office environment. So that's not really a new market for us. What we are doing is that we're filling in the gap that we had on the WAN side. So that's the first part. The second one is that if you look at our SD-WAN portfolio or WAN-Edge portfolio, it's really an extension of our cloud portfolio. So rather than coming in and saying that, look, we have a net new product and now we need to learn how to sell it, and we'll go and compete with point solutions that are available in the SD-WAN market, which if you follow that market, there's probably like 50 companies that still have a point solution called SD-WAN. For us, that SD-WAN is really the extension of our cloud all the way into the WAN-Edge. And we call it the one more strategy. So one more thing. So it's one more thing that you can buy from us from our cloud side or conversely speaking, for Joe's team as well as for our channel is the one more thing that they can offer to their customers, to whom they're already selling the cloud as well as our wired and wireless portfolio. So based on these 2 things, we feel pretty confident in our ability to forecast that business and essentially, look at the funnel because there's a huge amount of opportunity for us in our installed base to fill that gap through one more thing from our cloud. So that's one part. And then if you look at out into the future, so this is currently, so let's just call it in the first 1 to 2 years or 3 years of it. But if you look 3 years to 5 years out, that also allows us to then expand into some of the categories that are definitely new to us, for example, AD Security. For example, Zero Trust. For example, VPN and stuff that will allow us to attract net new category of customers out there. So net-net, I feel in the 1- to 3-year range, we don't really see any problems and extend in that market. So that's my view on that. And I'll hand it back to you.

Yes. And so I think, Nabil, you hit on it, which is we have the existing customers from the acquired business of Ipanema and then we have our ideal customer profile from our huge base of customers that we've got. So it's an extension of -- as Nabil mentioned, extension of the service that we're delivering over our cloud to existing customers.

So I think you described the improvement in supply chain in fiscal '23 as a step function improvement. So that means that the September quarter will notice meaningful improvement, and then in the December quarter, we'll see meaningful improvement from September kind of like that. And then the other question I had is, what do you think options dilution is going to be over the next sort of 3 to 5 years -- per year?

I'll take the first part. So yes, we -- I categorize it as a step function and that's -- we're going to be able to ship -- our FY '23 is almost 100% on the product side, defined by what our supply availability is, what can we build effectively. And so we're able to bring in, call it, the same percentages of products based on what we've ordered. We're expecting it to remain flat in terms of what we're pulling in, but our order volume has gone up, and it's -- that started well over a year ago. So our expectation is, we'll be able to then build more finished goods and ship against that each quarter. And the each quarter -- to answer your question specifically, yes, there is a step function. Each quarter, you'll see functional improvements. And then in Q4, we expect that to be substantial to be very material to that improvement. And it's a function of time, it's a function of backlog, it's a function of availability of products.

But to be clear, Andrew, we don't see ourselves crossing the 60% gross margin mark until Q3 at the earliest. So in the first half, you should be expecting us to be below 60%. Based on the inputs I get from Norman and his team on purchase price variance, which is what we paid to brought them at others, et cetera, freight costs. Right now, we see ourselves under 60% for Q4, Q1 and Q2, and hopefully, crossing that mark in Q3. And this is a projection, so we'll see how things evolve.

I want to go to the web.

So the -- is that dilution from our equity programs?

So well, our current policy is that we will return capital to shareholders by buying back shares to hold our share count neutral.

In other words, if every year, there's a certain amount, which is a few tens of million dollars of stock-based compensation, we will basically buy an equivalent amount, and we'll see how many units that is to offset so that you should be modeling $132 million shares in your model over the next few quarters in spite of stock-based comp because every time we issue new shares, we'll go and make sure we neutralize that by buying back.

Does that answer the question?

A number that you would use for the annual increase in stock option dilution that you think is acceptable to...

The number is 0, we do not want the share count to increase.

Right. But I'm talking about before you buy back the stock.

I'm confused.

Issuance -- annual issuance that...

Yes. I mean our annual issuance is, we have a compensation process where effectively each year, we have to remain competitive with the market. And so that's the policy that we use from a comp committee. We go through an extensive process to understand where we are relative to the market, and I'll tell you, we're not moving with the market now or below market in terms of what we are doing. It's interesting we're for talent today. If you look at Radware or all the other comp consultants, they're talking numbers, especially on the equity side, year-over-year up 40%. You're not going to see that from Extreme. We'll be significantly less than that.

I want to take a question from the live stream. So a question from Dave Kang at B. Riley. Referencing Joe's comments on bookings strength, it seems like it was more of a catch-up spend with COVID. Is there a bigger demand driver that goes beyond a post-COVID catch-up? And how long will it last? And there's a follow-up.

Good question. Thanks. The -- well, first of all, we've got new markets that we're going into. So we have an opportunity with new markets. I didn't talk about Ericsson. We have proof of concepts going on now with Ericsson, and so we're going to expand on our relationship. Ericsson is using our product inside their offerings to provide to major service providers around the globe. We've got 8,000 partners, as I mentioned, that we can upsell to. Only 1,500 of those are currently selling the full product line, so lots of headroom there. I'll probably add thousands more in the future in underserved markets. I have many markets that we have below average market share rate. We're going to bring on other service providers and MSPs this year. So I've got an entire group, and we're rotating the growth with our MSPs and Nabil's team is creating products that are very friendly there, and so that's upside. And then our services business, we're selling more premier service to these customers. Universal Hardware and all the other products that we're bringing along will allow us an opportunity to sell. So to answer your question this year, no, I don't see it stopping. I'm pretty bullish on what we're seeing right now and then going into the future.

Yes. I would just -- I would frame it also in connection with taking share. So there's what's going on in the market and then there's our ability to take share. And given our relative size is a 5% share player relative to Cisco, when we take a share point, it has a big impact on our growth. So to the extent that there is a market slowdown in terms of the growth rate. On our side, we think we can overcome that given the share gains that we're taking in the market from Cisco. The other thing I would mention, Joe, and this is something that we've seen a lot of this consolidation in the channel. And a lot of our traditional channel partners have been some of the smaller partners being swallowed up by larger channel players. This is a huge opportunity for us because these larger channel players, they want more exposure from Extreme, and they're larger businesses. So whereas, we may have been a large portion of a smaller provider with, call it, a $20 million a year partner in the new landscape to be a meaningful partner. We need to be $100 million. And so with some of the larger -- Joe talked about recruiting in the channel and the channel opportunities that we have, we see a huge opportunity to grow through the channel and taking wallet share in the channel. Joe, I don't know if you want to add to that?

Yes. There's wallet share, which is customer -- kind of customer related then there's mindshare, which is partner related, and that's been told that we're easier to do business with. Obviously, I'm biased, but that's -- those are direct quotes. And so we've been the benefactor of these acquisitions. Recently, we've come out on a good end of that, and we're going to expand on that. I'm going to rotate so that we put more focused resources on those opportunities like we're going to do with service provider and MSPs. So it gives us a really nice upside. But to Ed's point, and what I said 3 or 4 times during my presentation is, we are taking share. I mean it's clear. I see it in the win-loss, and I study the win-loss data pretty intensely.

And then the follow-up question was, when we think about FY '25 backlog, as that normalizes, does it mean backlog will go all the way down to historical levels that we referenced, $20 million to $50 million? Or where does it normalize to?

Yes. So I mentioned that, and then Rémi had specific details, but what we said is, a normalized view for us is 80-20. So roughly 20% of our bookings are either future quarter requests or they don't go out for, as Rémi mentioned, timing or other reasons. And that's normal. That's our ordinary pre-pandemic circumstance. And just on a relative basis, that number was $30 million, that was 20%. You fast forward to at the end of '25, we're saying that normalized 80/20 is $100 million. So it's -- $92 million is actually what's in the model -- $92 million to $100 million is what's in the model, but it's $100 million is that new normalized. And that's a function of scale and how we've raised the bar. Also, I wanted just to add one comment to the earlier question about pent-up demand. If it was pent-up demand, I think we would already be seeing slowdown, and we're not experiencing that at all. And what we're seeing, as I had mentioned earlier, is this is more an investment or a transition to -- the network is absolutely strategic to the future of organizations. Everything is different. So again, you're a hospital, you're different than you were prepandemic. You're a school, you're no longer fighting with 100% virtual. People want you back in the -- into the university or to the location. You're a venue. Everything has changed. And you see that the real time in -- MLB is a great example. Cashless, ticketless, biometrics, that's the future. That's where we are. And it's no longer, oh, let's kick this -- kick the can in terms of just a follow-up investment. This is, hey, it's a strategic move. We need to do this, and that's changed the entire profile of the investment.

Let's come back to the room, Alex.

I wanted to ask a question a little bit more to the point on the pricing side that was offered earlier. We've heard from multiple sources, industry contacts, as far as experts that we've interviewed as well as from other peers in the industry that Cisco's pricing is up somewhere in the order of 10% to 15% plus in campus and 20% to 30% plus in the data center. We've also been trying to get a handle on the degree to which there's discounting off of that. And from what we can tell, the discounting is actually probably less than historical norms. First off, is that consistent with your understanding of what's going on in pricing? Second, is that consistent with your view on the discounting? And third, how do you operate underneath that? And what kind of price delta are you building into your revenue growth forecast because, obviously, if your prices are up 10%, that's a big piece of your revenue growth forecast.

So we'll tag team this. So first off, we survey our distributors every month, every quarter, and we're getting the same feedback. We're seeing that Cisco and others and Ed mentioned this earlier, have created that umbrella. So they're the market maker, if you will, in terms of price, and that's consistent with what we're hearing. Which is why...

Those numbers, specifically?

Yes, specifically, categorically. We're hearing that from across our distributors. And what we do is we balance and to understand how can we influence our price point within those distributors? How are we performing and those questions about discounting, how is it playing out in the field itself. So those are the guiding principles for how we raise price. And as Ed mentioned, we did a price raise in July that was very targeted, then we did more across the portfolio in October and then again in April. And what we're seeing is, it's had no effect on demand. It's not curving demand at all. In fact, our customers, the market, we're all conditioned. We're in an inflationary cycle. We're conditioned to buy at those levels. In fact, what we saw was when those price announcements go out, we do a 30-day -- yes, we're actually seeing a spike in demand because they want to get ahead of it, and their concern is, there's going to be another one. And you probably read recently, you saw that TSMC was indicating that they're going to raise prices again. What we've seen is, as soon as TSMC does that, Broadcom does the exact same, and they were instant. All the other providers, they took time. They sort of moved around. People tried to negotiate different items, but Broadcom was instantaneous from a TSMC. The good news on that is, it's looking like it's a 5% to 8% potential increase there, and then you've got other providers that are saying much higher numbers. And then Rémi, I know you're going to cover the exact.

You took all my time so I won't. Because you were busy telling jokes at the beginning of your call. So if you didn't need up that 3 minutes. [indiscernible] we'll follow up with you, especially on the unit versus value question.

One more question, if I could. I've also heard that Cisco has been guaranteeing the delivery in order to get the price increase hikes that they're talking about, particularly with smaller medium-sized accounts and then actually not delivering it, putting them in a box where they can't deliver the product. They're not getting the product, but they can't reorder so they have to stick with it anyway. So are you seeing that type of...

Joe, you can chime in...

And within that context, they're biasing heavily to their largest customers, leaving the middle market wide open. So how much share gain does that imply for you guys?

So do you want me to go first or...

Yes, I would go first and just say, Alex, what you're hearing is, we would agree with that. We are hearing the same things. Normally, we compete against Cisco. They're a much larger company. And sometimes we can be our own echo chamber, where people are talking about all what's really bad out there and then we just listening to ourselves or is it really happening in the marketplace. And I would say, the volume is so much higher. And then in terms of our win loss, in terms of how we're winning in the marketplace, we feel this time it's different. And especially in the channel, to your point, Cisco has very large global channel partners, and they are prioritizing to them. And that's part of the reason why some of the smaller or medium-sized partners, which for Extreme, are very large partners, want more exposure to the Extreme. And that's a huge growth opportunity for us is taking that wallet share from the channel. So we're -- I would agree with what you're saying. It's consistent with what we're hearing in the market from our field. The noise is that this is different. Customers saying, no bid to scale. That's something that we haven't heard before. Channel partners coming to us saying, we want more exposure to Extreme. That's creating the opportunity for us to take share. Joe, I don't know if you have any...

I would add that some of our competitors are forcing our partners to pay cash and that's creating opportunities for us because we're not doing that and strong arming our partners, and we're giving them really dedicated support. So all of those, in addition to what you said, is happening in the market right now.

So we're right on time. I think we break. If there are follow-up questions, we'll be around, and I know I think we have -- what are you going to say?

So I just wanted to say that we're going to have all of these presentations posted on our website and you can check that out and check our live stream out. And then in the spirit of what Nabil talked about with one more thing, we do have one more thing to announce before we break for lunch.

Yes, if you go advance the slide. So in addition to all of our news that we put out and information, we also announced today that this morning that we are now an official partner with Liverpool, Liverpool Football Club. So taking that global footprint to the next level. A few weeks ago, you heard us a couple of months ago with MAN U, and a couple of weeks ago with Verizon. We're working with Verizon business in Europe and in Asia and in the U.S., which is a big move for Extreme. And we'll be expanding that beyond the venue space into their managed service offerings and everything else going forward, but we're working here with Liverpool Football Club. If anybody follows European or the Premier League, they're kind of a big brand. If you take the NFL, Major League Baseball, the NBA and the NHL together, they're less than MAN U or Liverpool alone. So it's a big deal for us on a global footprint and a global stage, and we're really excited about it. So I want to end on a good note, Ed. Great way to go to lunch.

Okay, we'll break and we've got lunch served outside. Thank you very much. Yes.