© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day and thank you for standing by. Welcome to the Extreme Networks First Quarter Fiscal Year 2022 Financial Results Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator instructions].
I would now like to hand the conference over to your speaker today, Stan Kovler, Vice President of Corporate Strategy and Investor Relations. Please go ahead.
Thank you, Norma and welcome everyone to the Extreme Networks first quarter 2022 earnings conference call. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations. With me today are Extreme Networks' President and CEO, Ed Meyercord; and CFO, Rémi Thomas.
We just distributed a press release and filed an 8-K detailing Extreme Networks' financial results for the quarter. For your convenience, a copy of the press release, which includes our GAAP to non-GAAP reconciliations is available in the Investor Relations section of our website at extremenetworks.com.
I would like to remind you that, during today's call, our discussion may include forward-looking statements about Extreme's future business, financial and operational results; growth expectations and strategies; the impact of the COVID pandemic and challenges in our supply chain, specifically as they relate to chip shortages and otherwise. We caution you not to put undue reliance on these forward-looking statements as they involve risks and uncertainties that can cause actual results to differ materially from those anticipated by these statements, as described in our risk factors in our 10-K report for the period ending June 30, 2021 filed with the SEC and any additional risk factors in subsequent 10-Q filings. Any forward-looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them, except as required by law.
Now, I will turn the call over to Extreme's President and CEO, Ed Meyercord.
Thank you, Stan. And thank you all for joining us this morning. Q1 was characterized by unprecedented bookings growth and continued double digit year-over-year revenue growth. Q1 bookings accelerated to 45% year-over-year growth even higher than the 36% achieved in Q4. This continued strength in demand was evidenced by record 43 customers that booked over a million dollars in business with extreme in Q1 up from 32 in Q4, and our backlog doubled to over $200 million.
This marks the third consecutive quarter of double digit bookings and revenue growth, including the third consecutive quarter of double digit product revenue growth. Given the demand trends at hand and our backlog which we expect to grow once again in Q2, we now expect double digit organic revenue growth in fiscal ‘22. We further improved our competitive position and according to industry research firms 650 group gained a point of share in each of the prior two quarters in the campus enterprise networking market.
In cloud managed networking the fastest growing segment of our industry, we strengthen our competitive position and our 13% market share is larger than the number three and number four vendor share combined.
Customers are accelerating their investments in digital transformation related to return to work environments that are more flexible and hybrid in nature, supporting our infinite enterprise vision. The networking industry is experiencing the highest growth in years. And our growth is accelerated by the fact that we are taking share in this environment. The combination of our leading cloud management solution, universal wired and wireless platforms, our automated campus fabric and simple licensing model provides customers with unparalleled value for their networking needs.
We are focused on supporting our customers increasingly distributed networks, and what we call the infinite enterprise where cloud becomes the connective tissue. Given the heightened awareness of our brand, the strength of our competitive position with channel partners and enterprise customers, and the technology differentiation of our solutions, we see continued momentum, building the value of opportunities in our pipeline, and we are closing a larger percentage of deals with an increase in our funnel conversion rate.
This quarter we doubled down on our infinite enterprise vision with the acquisition of Ipanema. We now have important new capabilities to support the infinite enterprise, such as session based application performance management, policy enforcement, firewalls, service, WAN edge routing, all delivered from the cloud.
Our new WAN edge capabilities will be delivered as a service and become an important driver of our software subscription recurring revenue. Since we closed the acquisition on September 15, our business integration and product development plans are tracking ahead of plan. We expect to turn up our new SaaS back office operating systems, our new customer success and lifecycle management platform and complete the system integration in early fiscal Q3. This will support the rollout of our extreme branded WAN Edge solutions globally. Since we announced the acquisition, we have received positive feedback and reverse inquiry from customers and partners showing significant interest and our new capabilities.
Meanwhile, product cycles in the infrastructure business are getting shorter with new innovations coming out that require cloud to drive them. We grew SaaS subscription bookings by 71% year-over-year, and our growth would have been even higher in SaaS if we were able to meet customer demand since new subscription bookings of XIQ pilot. Our base cloud management license are currently attached to new product sales.
Our total cloud services business is now at an annualized run rate of nearly $130 million in bookings. As Rémi will discuss in greater detail we have begun to report SaaS annual recurring revenue, which was $78 million this quarter, up 54% year-over-year and 15% quarter-over-quarter and our service provider business, we continue to execute towards our goal of attaining $20 million of 5G business in fiscal ‘22 in line with our expectations, both of our 5G solutions, the 9920 packet broker visibility solution, and the cloud native infrastructure solutions for IP fabric automation performed well.
And we expect growth to accelerate into the first half of calendar ‘22. And our core network infrastructure business, we delivered several key innovations during the quarter, we announced that Novant Health was the first commercial Wi-Fi 6E customer in the industry. Extreme solution allows users to take advantage of the full 1200 megahertz of new spectrum and enables enhanced care experience to patients such as new communication tools and telehealth at peak network performance.
The combination of new AP 4000 hardware with Extreme cloud IQ, which is the only ISO certified cloud network management platform in the industry provides an unrivaled data security posture for Novant. On the wired side of our portfolio, we have a strong slate of universal products coming out and the first half of calendar ‘22 to further expand our previous mid range upgrades with a 5420 and 5520 with a lower tier and a higher density offering. Both product lines are targeted at the product refresh of our existing portfolio and new used cases, such as software upgradeable multirate capabilities.
We are creating new API capabilities for customers to enable our wireless [knak] and analytics capabilities to directly integrate extremes management functions with third party systems. We can extend our functionality with custom applications and are set to offer a standard Python based software development kit with integrated sample code.
Despite all the accelerated innovation happening at Extreme, we remain committed to driving simplicity and networking. We are employing a mobile first philosophy and we will further enhance our mobile app, the more intuitive user experience and shorten our new release cadence to enable users to manage their switching environment along with wireless.
We now enable features such as onboarding wired devices, capture and upload images, device performance visibility, and the overall network scorecard. With our co-pilot, artificial intelligence and machine learning engine, we provide our customers with new explainable insights that can optimize network performance, identify potential security risks, anomalous threats, network vulnerabilities and enable operating efficiencies. These differentiated and enhanced capabilities strengthen our profile as a leading innovator in cloud networking.
We are adding new over the top cloud capabilities that will accelerate our cloud transformation with multi domain cloud licenses. This allows us to sell software for devices that are not tethered to extremes networking infrastructure. The first use case solution of our multi-domain cloud is our new partnership with Zebra Technologies to add enhanced network visibility to Zebra handheld devices managed to XIQ. This allows a network administrator to help users get much better troubleshooting support to our intuitive insights engine. This unmatched visibility will dramatically reduce time to resolution for these business critical devices.
The funnel of opportunities remain strong across a broad range of verticals and market segments we serve. The record backlog with which we entered Q2 gives us confidence in our ability to capitalize on our growth objectives. We continue to grow our market share and realize the level of organic growth we have not witnessed for many, many years.
And with that, I will turn the call over to our CFO Rémi Thomas.
Thanks, Ed. As I've noted, we started off fiscal ‘22 on a very strong note and executed well across the board. Q1 total revenue of $267.7 million to 14% year-over-year. Strong demand for our wired and wireless portfolio drove up your growth of 15% for product revenue, and 11% for services and subscription revenue. Our overall, bookings grew 45% year-over-year, led by 52% for product, 80% for services, and 71% the SaaS subscription.
This quarter, we began to report our SaaS annual recurring revenue or SaaS ARR of $78 million which grew 54% year-over-year, and 15% quarter-over-quarter. That historical ARR data can be found on page 18 of our Q1 earnings deck posted on our website. We also reported SaaS ending deferred revenue of $122 million up 45% year-over-year, and 9% quarter-over-quarter. Our total cloud managed subscription business including renewals approach $130 million during the quarter, up from over $115 million in Q4. Non-GAAP earnings per share was $0.21 up from $0.09 in the year ago quarter and from $0.19 last quarter.
Total services revenue reach a record $82.5 million up 11% from the year ago quarter and was flat sequentially, largely driven by the strength of cloud subscriptions. The growth of cloud subscription and services renewals resulted in total deferred revenue of $356 million up 20% from $298 million in the year ago quarter and up 3% from $346 million in Q4. On a geographic basis product bookings in the Americas, EMEA and APAC were all up strong double digits from the year ago quarter. From a vertical standpoint, the highest year-over-year growth came from service provider, followed by government, healthcare and education.
Our non-GAAP gross margin at 60.3% was above the high end of our guidance range and was flat from a year ago quarter and down just 20 basis points from 60.5% in Q4. The year-over-year increase in the company's gross margin was driven for the most part by product, which benefited from the higher absorption of the six components of our COGS through increased volume and a better mix. Q1 non-GAAP operating expenses were $124.5 million, up from $122.6 million in the year ago quarter and down from $130.9 million in Q4 reflecting the variable sales and marketing costs associated with our revenue volume.
We set a second consecutive record for operating margin at 13.8%, up from 13.4% in Q4, and just 8.3% in the year ago quarter. Our cash conversion cycle reaches start the low level of just nine days falling in already low 22 days last quarter and 44 days last year. The sequential reduction was primarily driven by a decrease in day sales outstanding, and an increase in days payables outstanding. Our net debt increase to just shy of $139 million, up $100 million in Q4 due to the acquisition of Ipanema for $71 million. Our covenant leverage ratio fell to 1.6 and starting in early November, the interest cost carried on our term known a debt will drop by another 50 basis points from an hourly rates of 2.7% to 2.2%.
Now turning to guidance. The strength of bookings against the backdrop of continued supply chain constraints will lead to a further increase in backlog in Q2. We expect revenue to be in the range of $265 million to $280 million, up 13% year-over-year at the midpoint. Q2 non-GAAP gross margin is anticipated to be in the range of 57% to 59% as we expect elevated expedite fees and freight costs to peak this quarter.
Q2 non-GAAP operating expenses are expected to be in the range of $125.8 million to $127.4 million. The sequential increase in OpEx is primarily related to higher sales commissions and higher R&D expenses reflecting a full quarter of Ipanema expenses. Q2 non-GAAP earnings are anticipated to be in the range of $18.4 million to $28.9 million, or $0.14 to $0.21 per diluted share.
We do expect product availability to improve entering Q3 leading to accelerated revenue growth. We are thus raising our revenue outlook for the full fiscal ‘22 to two double digit growth compared to our prior guidance of 5% to 9%. We anticipate that the reduction in expedite and shipping fees combined with the full impact of our recent pricing actions will lead to a gross margin recovery in the second half of fiscal ‘22. As a result, we have increased confidence in our ability to deliver an operating margin of between 10% and 15% for fiscal ‘22.
With that I will now turn it over to the operator to begin the question and answer session.
Thank you. [Operator Instructions] And our first question comes from Alex Henderson with Needham. Your line is open.
Thank you very much. Certainly an outstanding quarter. I was wondering if you could give us a little bit more detail on what you're seeing in terms of your price hikes, the impact on product sales associated with those price hikes. And with I think both Cisco and Arista and probably HPL on the positive what they've done, increases in prices. Can you talk about what the competitive price hikes look like and then on the supply chains side of it, I get the idea that its peak here in the current period. Are you expecting that you're going to work down the backlog in the guide? Or are you expecting that the backlog will stay at current levels through the end of the fiscal year in the guide of 10% growth?
Thanks Alex. This is Ed and why don't I jump in upfront, Rémi later you come in. So as far as the pricing environment, yes we've seen competitors throughout the industry raising price, what you've seen is a range of about, on average, about 10% to 15%. And we're right in line with what we've done. We took action early and our price increase went into effect on October 1. And so because of the backlog and the way we account, you won't see the benefit of that price increase for us until the second half of our fiscal in Q3 and Q4. As we mentioned in the comments, as Rémi mentioned, this quarter, we are taking up a revenue guide. But we expect to build backlog.
A lot of that has to do with the strength of demand. We're seeing bookings levels that we haven't seen previously. As I mentioned earlier, we're seeing more and more opportunities and we're converting on those opportunities which is driving higher than expected demand and bookings growth and so that is contributing along with supply chain constraints to us building backlog again in Q2. Rémi do you want to add to that?
The only the thing I would add Ed is in the past when we had price increase in November of 2018 related to the tariff, we saw some of that being discounted, because the field wanted to maintain our competitive position, given that this is something that we see on our competitors as well and we basically made sure this strong discipline so far we've seen basically discounting being held up and actually in Q1 we saw an actual reduction in our discounting behavior in the field. So the price hikes are holding up and they're translating into higher ASB and hopefully higher revenue number once we're able to work through our existing backlog.
So if I could so just to be clear, you said you're getting a backlog I think you made that comment relative to the December quarter. Are you saying you're expecting to increase backlog again in March and June? Or you expecting the backlog to hold at the December level through the end of the year or work it down?
We are expected, yea, we're expecting to work it down starting in the March quarter.
Okay and little confused by the guide then because the -- if the price increases 10% to 15% kicking in the March, June quarter, and we hold the services line fairly flat, that would imply only 6% to 8% type growth in product sales in the back half of the year to get to 15% in the first two quarters. So double digits is a nice number. It's a nice increase, but it doesn't seem to cater both work down in backlog and the price side.
Yes. We don't expect to work down all the backlog, but we expect to start chipping away at the backlog. Alex, I think that's how I would describe it. And then when we say double digits I don't think double digits is a pretty big range. So I don't think we're thinking 10%. I think we're definitely thinking higher than that in terms of the back half of the year.
Okay. That's what I was looking for. Thanks.
Yes. So I would say over 10% growth. Yes.
Thank you.
Thank you. Our next question comes from Eric Martinuzzi with Lake Street. Your line is open.
So just to be clear, that goes from 10% up to 99%. Ed is that the case for the double digit?
Very good, very good.
Okay. I'll go to the lower end of that. Okay. So I wanted to dive down drilling a little bit deeper. You talked about an increase in your funnel conversion rate. Is that the same thing as an improvement in your win rate?
Yes. There are a few things that are driving it. We talked about the overall up leveling of extreme our brand as more and more people are turning to cloud, you are extremely showing up on the radar as a cloud leader with number two market share and one of the fastest growing players in cloud. So as people are considering cloud networking alternatives, they're looking to Extreme. So we're getting more Lux. And as I said before, we're getting more at that. And then what's happening is that we are seeing a higher conversion rate on those opportunities. So we're winning more in competitive situations for larger projects, you can see that with deals over a million dollars that we commented on.
The other thing that's happening is that the way we're structured to go to market is that we have a partner program for our channel partners that has gained a lot of momentum. And we provided a lot more focus on our partners and supporting partners with automation tools, making it easier for partners to position extreme and then once again, as partners are hearing about cloud, then partners are turning to extreme and then we're getting greater wallet share from partners given the strength of our cloud offering.
The fact that we are end to end, the fact that we have this unique cloud native architecture, which is different from the largest player in the market that gives us a lot of advantage.
And then as people are looking more and more to data as the new currency and cloud we have unique capabilities as it relates to providing and retaining data for key insights. And so there is real technology differentiation in here as well. So both in competitive projects, where Extreme is being invited, and we're winning more and then also in the channel where the channel is waking up and realizing, hey, this is a great time to position Extreme and Extreme is winning here. I'm going to make that better with Extreme.
Okay, I wanted to better understand the second quarter guidance with regard to the impact from Ipanema. But before we get to that, was there, what was the revenue impact in the first quarter from Ipnanema? I know, you close that very close to the end of Q1. What was the revenue impact?
Rémi you want to pick that up?
Yes. It was immaterial, Eric, call it a few hundred thousand dollars. We only consolidated two weeks of revenue, and then we have a deferred revenue haircut that was applied to that.
Okay, and then the guidance for Q2 you're talking about a revenue range of $265 million to 280 million. How much of that is Ipanmea and then how is it being traded? Kind of, is it for them, do we have a purchase accounting adjustment here or is that a non-GAAP revenue?
We do unfortunately, so we expect the contribution pre-deferred revenue haircut to be slightly less than $5 million. But by the time you apply the deferred revenue haircut, you're looking at a couple million.
Got you. Okay. Congrats on the quarter and the outlook. Thanks.
Thanks Eric.
Thank you. Our next question comes from Dave Kang of B. Riley. Your line is open.
Yes, good morning. Nice quarter. I guess, the first question is regarding under supply chain constraints? How much of your revenue in fiscal first quarter was impacted by supply chain or component shortages? And how much are you baking into your fiscal second quarter guide?
Dave, Rémi I'll start off. Dave, I think that the tell tale sign is that we built 100 million of incremental backlog in the quarter. So moving from just over 100 million to just over 200 I think shows the magnitude of A, the booking strength on the demand side of the equation, then also the constraints in the supply chain side.
So with that kind of backlog, again, going into this quarter, we're seeing the strength of demand continue. So that's driving higher than expected bookings and then we remain backlog constraint, supply chain constraint. What I will say is that it was a year ago that our key chipset vendor stretched lead times to a year. And so it created a window for us where we have to work very aggressively and tactically with suppliers and specifically with Broadcom to line up secure ship dates for this quarter specifically. Rémi mentioned that this is the peak in terms of expedite fees and what we see is higher shipping expenses, etc.
And we believe that to be the case. So we believe that with the revenue guidance we have that we are still building backlog. But then we see that easing as we go into the March and June quarters. As it relates to March and June at this point, we're back to the annual ordering cycle. This is where we were where we placed orders a year ago and we have much better visibility to the delivery from the Broadcom perspective. Broadcom then becomes for us, the important anchor and driving the supply chain. And now we're actually working with secondary and tertiary vendors and supplying other components and parts working with our OEMs to bring in that supply to help them the production line. Rémi any other specifics, anything you want to add?
No, I think you highlighted the key point which is the backlog increased 100 million. Obviously we always have product constraint and customer constraints in every quarter. So under even normal circumstance would never be able to ship that 100 million but that's the order of magnitude of the impact of supply chain constraints on our revenue.
Got it. Regarding you calling fiscal second quarter bottom in terms of the supply chain impact have chip lead times stop stretching and chip prices Is that why you're thinking fiscal second quarter to be the bottom and then regarding fiscal second half, should we with you guys raising prices in the start to kick in should we expect gross margin to be back to 60% level? How should we think about second half gross margin?
Yes. Dave, yes. We do expect to snap back on the gross margin side in the second half of the year and it's the confluence of what you mentioned, supply. Chain this is the quarter where all of our products are being expedited, and we're paying very high fees to expedite supplies. The other thing is we're going right into the holiday season, and shipping has been constrained. Everything is being shipped by air. We expect that to start to loosen and to have more competitive options as we go through the holiday season into March.
So on the cost side of the equation, we'll have the benefit of reduced expedite fees as well as reduced shipping and transportation fees that kick in March and carry through into June. And then the same thing is true on the pricing side of the equation. With pricing we have to run through backlog and then we start to realize the benefit of the price increase. We start realizing that price increased benefit in March. So you have the effect of higher pricing and you have the effect of lower costs that start coming into play in that March quarter. And then we'll have the full effect of that as we move through the June and then September quarters.
Got it. Thank you.
Thank you. And our next question comes from Christian Schwab with Craig-Hallum Group. Your line is open.
Hey, thanks for taking the question and congrats on the solid execution in the quarter. Can you give us an update? Maybe I missed it. But can you give us an update of where you sit from product availability and backlog outlook for Wi-Fi 6 and your current thoughts on the migration to it?
Yes. I think I mean, Christian, thank you and you have, the Wi-Fi 6 becomes in those chipsets are part of our constraint. One of the things that I would say that we have done and we get credit from our distributors for doing it well is setting very realistic expectations for customers and for orders. Our supply chain teams work very close and tactically with our field, specifically on opportunities.
And so depending on what the opportunity is, we will prioritize a large important strategic account. The reception to Wi-Fi 6, we see Wi-Fi 6 as being a game changer in terms of what it does in terms of opening up spectrum and providing new capabilities. If you ask our Wi-Fi product team and PLM team they'll say in the last 10 to 15 years that this is truly a cycle that's a game changing differentiator and as we mentioned, we were first to market there. So we think demand will pick up very quickly and then Wi-Fi 6 is constrained, I would say is similar to the rest of our portfolio. But we will expect to see that ramp up significantly in the second half of the year.
Okay, great. No other questions. Thank you guys.
Thanks, Christian.
Thank you. And our next question comes from the line of Paul Silverstein with Cowen. Your line is open.
Thanks. Appreciate you taking the questions. And really, I apologize if I missed it. But you'll say anything about the new wireless products contribution and what you're expecting for the ramp giving us an update.
The contribution in terms of bookings has been strong Paul. However, wireless is somewhat more constrained than wired. So the contribution to revenue this quarter was down in the low to mid 20s as opposed to high 20s in past quarters. As far as bookings are concerned wireless and wired are on the same growth trajectory of in excess of 50% as I highlighted in my year-over-year in my introductory comments.
Hey Rémi, really shame on me. I think I used poor language I was actually referring to the new platforms on which you got a relationship with one of the U.S. carriers and the other one or what you're selling into --
Service provider.
Thank you, Apologies, I don't know where my mind is.
No problem. So I would say that actually this was one of the, this was the strongest growth. I mean, there's one vertical that could be better in terms of year growth and that would be our sports and entertainment. But that was from a favorable comparison basis, because it was minimal year ago. Service provider business was up 68% on a year-over-year basis in terms of bookings and accounted for slightly more than around 6% of total booking this quarter. So strong contribution which was driven by the combination of the two things you mentioned, Paul which is the relationship we have with a large U.S. service provider and the large telco equipment maker based in Europe.
And if I can add, Paul, just to provide a little bit more color. So the deployment on the packet broker side, which is our visibility manager, that has been largely in test mode and that deployment schedule begins in earnest in the first calendar quarter and then we expect that to ramp throughout calendar ‘22. And then as it relates to our OEM partner and the growth of our 5G solution, what's interesting, a few things have happened there. There were two different alternatives for telecom service providers that they support. They had an NFVI solution, and then they had a cloud native infrastructure solution really two alternatives for telecom service providers to choose from.
In the case of the cloud native solution, we are the single sole source vendor. And what has happened during the quarter is that they have now shifted. So all of they've moved away from NFVI as a competitive solution and everyone is embracing that cloud native infrastructure solution which bodes well for us considering that's 100% Extreme.
So what we're seeing now is we've had good news. You'll hear more coming from us. But some very large carriers are starting to begin deployments there. And we're expecting again, this to ramp as well, as we've called out in calendar ‘22. So there's this shift to cloud native. And really, that's where we shine in terms of our fabric automation and then what we're able to do on the infrastructure services side for them.
Rémi if I was more alert, perhaps I could do the math myself, but I'm hoping it will make it easy for me. And also I don't make a mistake. What was service provider as a percentage of bookings in the preceding quarter? You said it was 6% this quarter. What was the quarter before?
It was 8% in Q4. [indiscernible] and it was 5% a year ago.
5% year ago. Perfect. Guys I trust the answer is nothing. But let me ask you the question, which is other than supply chain, which doesn't appear to be all that impact or as impactful as perhaps one would have thought. What are the risks? What are your worry about what could go wrong or the next 12 months from here?
Yes, Paul, I think the big one for us really is supply chain. This is where fortunately, we have a strategic relationship with Broadcom. They work with us and they have been very, very supportive to us. And as I mentioned earlier we're now engaging with tier two and tier three suppliers. Normally we wouldn't engage with. So it's a very tactical exercise with us working supply and supply chain and I would say for us that's number one. The second thing for us is that we're rolling out new software services.
So we mentioned the growth in what is our pilot license XIQ pilot. We are moving quickly and in the first half of fiscal ‘22 we're going to be rolling out our first Extreme branded SD WAN and SD branch solutions.
And we're really excited about that. But we are standing up a brand new back office for SaaS. We are standing up a customer success and lifecycle management platform. These things are new to manage the full customer experience. And I would say this is where there's a huge amount of investment in focus at Extreme, because we see an opportunity to drive software subscription revenue from services.
And the first service is this SD WAN service that we'll be rolling out. We're a bit ahead of schedule in terms of how we're progressing from the rollout. We're starting in Europe. We're turning up RDCs in the U.S. and then we'll be launching in a globally in the first half of calendar ‘22 Extreme branded SD WAN capabilities that I talked about. I would say right now this is a new growth factor for us.
We're excited about it. And there's a lot of energy. So there's a lot of attention, inside Extreme being focused on software and then adding new software licenses on top of our base core XIQ pilot licenses. And so this is where I would say these are things that keep us up at night, because we're really focused and excited about driving this new growth opportunity and driving increased recurring revenue at Extreme.
Would you all mind if I squeeze in some more. Apologies for others in the call but I've got sort of other quick questions. I was hoping?
Yes. I think -- writing at all.
I greatly appreciate it guys. First off, and again, I'll pause as we already said this, but how much of the incremental growth is a function of new customer additions? How much is the function of penetration the existing customers base?
Yes, it's a combination of both. What I would say is, this quarter, we have seen an uptick in what we would call new customer logos. And I'd say that's being driven by the channel for one, we are attracting new channel partners and we are I think getting more wallet share with people in the channel realizing I can position Extreme and win with Extreme here.
So I think that that's one of the big drivers of new logos for us. And then, in competitive situations as I mentioned before, the brand awareness of Extreme is gone up. And so people are more aware, because it's known in the industry that we're clearly the number two in cloud networking. That's a secular trend in our industry where more and more people are going to be moving.
As you look at networking and the confluence of networking and cloud, and then more security and more services being delivered at the edge of the network all of a sudden Extreme is in a leadership position and in a strong place. So we are getting more inquiry. And so it's a combination of I think that the brand recognition, our stronger competitive position in the industry, specifically with cloud as one and then what's happening in the channel which is driving higher than normal new logo activity Extreme.
All right, last one for me. Rémi Thomas I appreciate that the price increases are obviously going to help, as they will your peers. But I'm curious what given that the commentary hasn't been uniform, but quite a number of your peers have referenced deteriorating supply chain environment. With both the breadth of products inputs, including [some years] expanding and the degree of price hikes and expedite shippers and freight costs have stepped up dramatically. I'm curious what underlies your belief that this quarter will be the peak and why you're not also seeing things get worse.
Because we operate very closely to a large suppliers, namely Broadcom and we get good visibility in terms of the POs that we placed with them, their commitment dates, and the cost of the expedite fees associated with these POs. And so when we look at what's expected for Q2, and then Q3 and Q4, we do anticipate that we'll see a decline and at the same time, we're going to get more of the benefit from the price the actions that we just took. As Ed mentioned earlier, need for the backlog which is booked at the prior pricing to wash through and once that's the case, you're basically selling in at the new price and you'll see the full benefit of that in Q3, and Q4.
There's going to be some impact in Q2, but not big enough to offset the price of expedite fees and freight costs whereas as of Q3, it gets better in Q4 gets even better. So it's really the timing of the actions we're taking and the full impact versus the timing of those expedite fees that we are paying and actually, the peak of the [actual] is expected to be in Q2.
Right. I appreciate the time and the responses. I'll take the rest offline. Thanks, guys.
Thanks Paul.
Thank you. And our next follow up is from Alex Henderson with Needham. Your line is open.
Thank you very much. I actually wanted to talk a little bit about something that Paul just brought up, but in slightly different context. Clearly with a price hike kicking in on October 1, customers are incentive to buy before the price side kicks in. So I guess part of the question is to what extent do you think that that happened and the second are you expecting to build a similar amount of backlog in the December quarter given that's the peak of the supply constraints as you did this quarter? And then I've got a follow up on that relative to duration of the orders. Is there any sense of how much of this is just extending the timeline that the orders are stretching out across?
Sure. Alex we watch this very closely and we've got, it's interesting, because we have an analytics tool, it's called [indiscernible] it sits on top of Salesforce. And we have incredible analytics today around the pipeline and around funnels. So we can see opportunities to get created in quarter, opportunities to get that slip and move out and we're all over this every week. So we've got very good visibility to the opportunities as they come in. There is no doubt that when we raise price, that there are going to be people that would pull it in order to take advantage of a lower price. That that's for sure. And in this environment, maybe demand would come earlier than usual because people are aware of what's going on with supply chain and so they would see, they would want to establish pole position, if you will, to try to get in front.
All that said, we have done a fair amount of price increases if you look at tariffs along the way, etc. Yes, I would say as far as that's concerned, we would say kind of normal behavior. The one thing that we look at is the health of the next quarter anytime if business is getting pulled in, you worry about is there going to be a dip in bookings in the following subsequent quarter.
And what I can say is that our funnel and the funnel of opportunities remains very strong for the December quarter. And that's where, that's what gives us the confidence. We don't have an exact measurement of what percentage got pulled in. That said, we look to the next quarter December at the opportunities and also what our bottoms up field teams are calling it AE level, the RD level, the VP level, etc. And the calls remain very firm and the funnel is there. So from our perspective we don't see this as kind of a one and done phenomenon this quarter.
So the question of do you think that you will also continue to build backlog at a similar rate during the fourth quarter calendar, fiscal second quarter?
I don't think we expect to build backlog by 100 million and I would say that was unique to this quarter, but we do expect to build that long. We will we will be net-net, higher we'll net-net have a book to bill over one.
And any comment about the duration of the orders that are going into the backlog. As an example, Juniper talked about a billion dollar increase in backlog and I don't remember the percentage but I think it was 30% increase in backlog but only 15% increase in backlog if adjusted for duration. Are you seeing a similar situation where you're seeing orders further into the future and therefore there's a duration stretch.
We measure customer constraints as well as product constraints and we don't see, we do not see a meaningful change in our customer constrained. In other words, a customer that's placing an order for future delivery outside of the quarter. So our duration is a lot shorter, maybe then Juniper's or other customers. And so we would rarely see an order that's out there longer than six months.
Okay. One last question and I'll play the floor. The top four verticals FP, government, healthcare, education, what [comprises] that your focus is much more on enterprise campus now, I would thought the enterprise would have been stronger. Can you talk a bit about enterprises in aggregate as opposed to the service provider government and education market.
Well when we say government, we are referring to enterprise, Alex. So maybe that's government customers are kind of campus enterprise customers for us. And so that was the big one. There we're not talking about, we're not zeroing in on federal government, for example.
Can you just talk about the enterprise environment excluding government service provider, and healthcare and education, that will aggregate to is that consistent with the increase?
I mean, yes. And that's what we're seeing and it's consistent with what we're seeing, as enterprise customers are, everybody continues to think about what is the new environment and people, enterprise customers are looking to support a more distributed environment where they can support a more flexible workforce. I think it's fair to say people have learned from COVID. People, our customers realize that they could be more effective than they thought and an environment where workers are remote and more and more of our customers are looking at supporting end users in a hybrid fashion wherever they are, if they're at home, or if they're in the office, wherever they are and that's, it's how we talk about the infinite enterprise because the edge of the network is moving away from the corporate office.
But they still want to deliver a consistent user experience wherever the user is. And that's the significance Ipanema acquisition for us in terms of being able to deliver cloud based application performance, management, routing, security, etc, etc. And so that's what's happening on the infrastructure side. We've seen strong investment and we've seen this acceleration of digital transformation that you hear about all the time as people are considering kind of the new normal here.
If I can just add, sorry, Alex, we typically are not a huge player in the carpeted enterprise. If that's what you're alluding to, Alex, but it's captured in two segments enterprise outside of our verticals like healthcare, retail, etc. It's captured in manufacturing, which is up high single digit, year-over-year and accounts for slightly less than 10% of revenue and what we call other industry verticals. And that was up 33% year-over-year and represented about 18% total bookings. So to Ed's point, it was a healthy trend. But as you know, that's not necessary our main focus when it comes to verticals.
Well, yes, but on the other side of that coin, that where you have opportunity to penetrate that's great to that. Thank you. That was what I was looking for.
Thank you. I'm currently showing no further questions in the queue at this time. I'd like to hand the conference back over to Mr. Ed Edward Meyercord for any closing comments.
Thank you, Norma and we're up on the hour. So thank you to everybody who could join us on the call today. We want to shout out to Extreme employees for an incredible effort during a difficult quarter for delivering excellent results. We also want to shout out to our channel partners and our customers out there. We wish everyone good health in this environment. We will remind everyone that we will be attending the Needham, Credit Suisse and Cowen conferences this upcoming quarter and we hope to see you there. Thanks everybody and have a great day.
This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.