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Ladies and gentlemen, thank you for standing by, and welcome to the Extreme Networks' Q4 Fiscal Year '20 Financial Results Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions] Please be advised that today's conference is being recorded [Operator Instructions]
I would now like to hand the conference over to our speaker today Stan Kovler, Vice President of Corporate Strategy and Investor Relations. Thank you. Please go ahead, sir.
Thank you, Gigi. Welcome to the Extreme Networks' fourth quarter fiscal and year-end 2020 earnings conference call. I'm Stan Kovler, Vice President of Corporate Strategy and Investor Relations. And with me today are Extreme Networks' President and CEO, Ed Meyercord; and CFO, Remi Thomas.
We just distributed a press release and filed an 8-K detailing Extreme Networks' fiscal fourth quarter and year-end fiscal 2020 financial results. For your convenience, a copy of the press release, which includes our GAAP to non-GAAP reconciliations and our financial results presentation are both available in the Investor Relations section of our website at extremenetworks.com.
I would like to remind you that during today's call, our discussion may include forward-looking statements about Extreme Networks' future business, financial and operational results, growth expectations and strategies, the impact of COVID-19 pandemic, acquired technologies, products, operations, pricing changes to our supply chain, the impact of tariffs, acquisition and integration of Aerohive Networks and digital transformation initiatives.
We caution you not to put undue reliance on these forward-looking statements as they involve risks and uncertainties that can cause actual results to differ materially from those anticipated by these statements, as described in our risk factors in our 10-K report for the period ending June 30, 2019, filed with the SEC and in our most recent 8-K and 10-Q filings. Any forward-looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them, except as required by law.
Now I will turn the call over to Extreme Networks' President and CEO, Ed Meyercord.
Thank you, Stan, and thank you all for joining us this morning. First off, I also want to say thank you to our employees, customers and partners in the front line of COVID. We continue to face heightened risks in keeping our vital networking infrastructure up and running.
It's been truly amazing to see how our customer's, teams across our industry verticals facing unprecedented challenges are responding to creative and innovative solutions to deliver enterprise applications end users with secure and high quality connections across new distributed networks.
Our Q4 results reflect the resilience of our business and our ability to move quickly to adapt to the new normal. Networking infrastructure remains vital for our customers and demand remains strong. Now more than ever before, our brand promise of effortless networking is resonating with customers.
Our universal hardware platforms from the wireless edge to wired core managed entirely from the cloud with machine learning insights and new AI tools to drive IQ automation allow us to make it very easy to deploy and manage distributed networks. And networks are becoming more and more about data. Extreme is the only provider in the industry to offer cloud choice and unlimited data and the first to bring end-to-end fabric management into the cloud.
Our ability to bring enhanced flexibility and effortless is up-leveling our competitive position in dialogue with customers. So, has Extreme implemented our own solutions internally? And the answer is yes. And how do we do it? Literally overnight. This is the power of ExtremeCloud IQ. This week Extreme simultaneously transformed 18 global office locations by deploying new wireless and wired infrastructure, managed by our cloud.
By utilizing the capabilities of ExtremeCloud IQ, we were able to pre-configure and architect our global environment before hardware was shipped to locations. Our automated device discovery and provisioning eliminated the need for any physical IT resources in each of the locations, and allow us -- allowed us to complete these 18 offices in a day. This rollout combined with plant expansions over the next 30 days, will support Extreme's entire global workforce of 3,000 people.
On a personal note, I also implemented ExtremeCloud a few months ago, and I admit I'm not that technical. I was able to deploy four access points throughout my house with existing Ethernet tables, the beauty of power over Ethernet, along with the switch. The whole exercise took less than an hour. And since then I've been demoing my cloud environment, network performance with MLM sites regularly with customers, partners, employees. It's that easy, effortless.
Here are five of many milestones we achieved during the quarter. One, we have strong adoption of our cloud. 42% sequential growth in new subscription bookings and 8.5% sequential growth and our managed devices to 1.1 million. Two, we strengthened our financial position and flexibility by further reducing our revenue breakeven point, delivering on profit -- profitability and cash generation during the quarter. Throughout the entire COVID crisis, Extreme has generated positive free cash flow.
Three, we revamped our go-to-market strategy and hired Joe Vitalone our new Chief Revenue Officer. Joe is a proven sales leader, 5x CRO, an excellent track record of leading and winning in our go-to-market model. As an added benefit, Joe and our new Chief Marketing Officer, Wes Durow, worked together at Mitel and both have had successful experiences, pivoting businesses from on-prem to as-a-service model. We’ve also identified our busy building new routes to market and improved processes that will ramp our lead gen, build funnel and drive growth.
Four, we restructured our R&D organization under our talented Chief Product Officer, Nabil Bukhari, and recently added CTO to his title, so he can focus on next gen technology innovation, bolstering our thought leadership in the industry and strengthening our strategic customer relationships. And five, we operationalized ExtremeCloud IQ to run on all three major public cloud platforms. And we're the only company that offers public, private or on-prem deployments. Not only that we announced unlimited data for the lifetime of our customer's subscription.
In some respect, COVID has leveled the playing field in marketing. We've experienced unprecedented attendance and participation in customer events. During the fourth quarter, we generated over 1.7 billion impressions from our PR efforts. Our webinar attendance was up 5x and we generated 3x as many marketing qualified leads during the quarter than we did during the first three quarters.
At our upcoming Connect User Conference, we're expecting 5x participation rate versus last year. The increase in our marketing productivity during COVID is only giving us confidence in our ability to grow and take share. Our sales teams are stepping up in a big way. We restructured our global field organization to enhance coverage of strategic and territory accounts and to support volume sales motions.
We also launched a new sales playbook platform that was built by sales force, for sales and will empower every seller in our organization with very specific tools and training for their roles. Our field fully embraced and already signed up for our strengthened commission plan and our cloud incentives in the first month of our fiscal year. And we just concluded our sales kickoff to receive high marks and a better than expected response, given the virtual environment. All in all, our sellers are off to a great start to fiscal '21.
On August 10, we will launch Extreme Empower. This is our channel self service environment with volume-based promotions to enable zero touch discount authorizations to our distributors and partners. Extreme Empower is already in production with a select group of distributors, very positive and we're committed to bringing effortless to the channel as well.
So wrapping up Q4, the key -- few key customer wins during the quarter included Madrid Digital Telehealth Network. We delivered secure access to the Department of Virtual Health and Social Services for 1.5 million citizens at Madrid, the capital of Spain. Nearly 17,000 health care administrators across 30 location will deliver telehealth services and collect data from remote medical devices from ExtremeCloud IQ.
So with all three of the revamps [ph] display conducted significant edge migration of its network using a range of Extreme Edge switches. This is a wallet share win with one of the world's largest manufacturers. And we have significant state and local government and education wins, including a multimillion dollar network deployment at Jefferson County Public School system in Kentucky, the 29th largest system in the U.S., enabling digital learning tools and applications for 169 schools. And outside the U.S., we won several multimillion dollar deals with education systems in Germany and Japan, driven by ExtremeCloud IQ.
As we pivoted to fiscal year '21, we got off to a solid start with strong July linearity and fall visibility that gives us confidence in our ability to deliver 4% sequential growth, and what is typically a seasonally down quarter. We expect gradual recovery from COVID to continue throughout fiscal '21 and believe Extreme will emerge from all of this as a stronger and more competitive company.
With that, I'll turn the call over to our CFO, Remi Thomas.
Thanks, Ed. Total revenue of $215.5 million grew 3% quarter-over-quarter, mainly driven by product revenue, up 4%, while services revenue edged up 1%. Our recurring revenue contributed 34% of revenue similar to Q3. Non-GAAP earnings per share was $0.03 compared to $0.06 in a year-ago quarter and a loss of $0.14 in Q3. The strong quarter-over-quarter recovery in our bottom line was a result of higher revenue, and a material reduction in our cost and expenses.
The reduction in our operating expense base by $12 million sequentially and $20 million from the year ago quarter means that our breakeven point is now closer to $215 million in quarterly revenues instead of the $220 million mentioned on our last earnings call. It also enabled us to generate free cash flow during the quarter of $6.2 million.
With $191 million of cash and equivalents on hand at the end of Q4, we have maintained our financial flexibility and liquidity position during a challenging macro environment. Our partners and customers benefited during the quarter from our recently introduced LEAP, the Lending Enablement and Assistance Program through September 30, 2020. The program enabled us to leverage a third-party financial solutions company to provide additional flexibility to customers during the pandemic.
Total product revenue was $141.5 million and our total product book-to-bill ratio was approximately 1.1. Revenue associated with newly introduced products grew 58% quarter-over-quarter. We're now 90% complete with our product refresh as of the June quarter in line with our previously announced goals. We've also began taking customer orders for universal hardware platforms that we'll be shipping in early calendar Q4.
On a relative basis, our edge switching products outperformed our wireless products during the quarter. Total services revenue of $74 million, grew 18% year-over-year, and 1% quarter-over-quarter, largely driven by maintenance and cloud subscriptions. Our total services book-to-bill ratio was 1.3 as customers continue to support their existing network requirements.
New cloud subscription bookings grew by 31% year-over-year and 42% sequentially. We are witnessing an accelerated adoption of cloud as a direct consequence of COVID. Based on our Q4 bookings, our cloud managed subscription business just reached nearly $60 million in annual run rate.
During the quarter, the Americas contributed 55% to total revenue, EMEA 35% and APJC close out the remaining 10%. In the U.S., we saw improving momentum in the government and education verticals, somewhat of a recovery with manufacturing customers, and a solid telco service provider market.
Non-GAAP gross margin was 59.4%, up from 59.2% in the year ago quarter, and compared to 56.7% in Q3. The sequential increase was attributable to high volume, the non recurrence of the one-time inventory write-down booked in Q3, as well as a reduction in the variable and fixed costs embedded in our cost of goods sold line.
Q4 non-GAAP opportunity expenses of $116.8 million were at the midpoint of our $115 million to $120 million outlook, down from $129.3 million quarter-over-quarter, and $136.8 million in the year-ago quarter. This resulted in an operating margin of 5.2% versus an operating margin loss of 5.1% in Q3, and up from an operating margin of 4.9% in the year ago quarter.
Free cash flow was $6.2 million, up from $2 million in Q3 and down from $18.9 million in the year ago quarter. Our cash conversion cycle increased to 70 days from 59 days in Q3, and from 61 days in a year-ago quarter. The sequential increase in our cash conversion cycle was driven mostly by 10-day increase in DSOs from what was normally low level of account receivables coming out of Q3, combined with a 5-day reduction in DPOs.
We made sequential progress in reducing our inventory levels measured both in absolute dollars, down to $62.6 million as of the end of Q4 from $66.2 million as of the end of Q3, as well as days of inventory from 83 to 80 days. In fact, we believe there is significant room for further improvements in future quarters.
Now turning to guidance. We expect Q1 revenue to be in the range of $220 million to $230 million, which represents 4% sequential growth at the midpoint. Q1 GAAP gross margin is anticipated to be in the range of 55.8% to 56.8% and non-GAAP gross margin in the range of 59% to 60%.
Q1 GAAP operating expenses are expected to be in the range of $131.1 million to $135.1 million, and non-GAAP OpEx in the range of $120.6 million to $124.6 million. The sequential increase in OpEx is primarily related to the reversal of some of our short-term expense measures implemented in Q4, higher commissions reflecting current revenue expectation and to a lesser extent, rising spend and travel and entertainment in comparison to the minimal level incurred in Q4.
Q1 GAAP earnings are expected to be in the range of a net loss of $16.9 million to $13.1 million or a loss of $0.14 to $0.11 per share. Non-GAAP net income is expected to be in the range of $0.7 million to $4.9 million, or $0.01 to $0.04 per diluted share. In Q1, we expect average shares outstanding to be approximately $121.7 million on a GAAP basis, and $122.2 million on a non-GAAP basis.
With that, I will now turn it over to the operator to begin the question-and-answer session.
[Operator Instructions] Our first question comes from the line of Alex Henderson from Needham. Your line is now open.
Thanks. Just a quick clarification before I ask you a question. The comment about the universal products being available and taking orders for it, that was CY 4Q, not FY 4Q in terms of when it's available, correct?
Alex, that's FY. It's our fiscal year. So it's in the December quarter. We're already taking orders for the 55 '20 [ph]. Our Universal APs are coming to market in August and then our switch port switches are coming out in the November timeframe. So it's that -- it's calendar fiscal '20, and it's Q2. I mean, it's calendar Q4 and it's our fiscal Q2.
Great. Thanks for that clarification. And by the way, I just wanted to say thank you very much for the slide deck with the key performance and vertical trends. That's very nice granularity and it's good content. I was hoping you could talk a little bit about the difference between what you're seeing in the campus market, what your expectations are for that relative to the environment versus a data center type of environment and also relative to cloud edge. What's going on in core campus? Thanks.
Yes, let me take a shot at that, Alex. What we're seeing and you could hear it in our prepared remarks is distributed. So with people working from home, you have a different kind of campus network. There's more emphasis on remote workers and various different. I mentioned that Madrid Telehealth where you've got distributed patients, for example, you have to take care of. So it was putting -- it's putting more emphasis on external connections, securing applications out to the edge and distributed networks, and then still being able to provide security and the quality of service out on the edge. So what we're seeing is that from a campus perspective, campus networks are alive and well, but they're just more distributed.
In our case, when we look at our business and we look at our funnel, our funnel looks good, it looks strong. But it's -- as you would predict, we're seeing opportunities that are more distributed in nature. A lot of our customers in this let space, state, local, education, are taking advantage of empty campuses to upgrade and refresh networks in a physical environment where they don't have people there physically that would cause any kind of disruption to their work environment. So from our standpoint, we see -- we continue to see a healthy funnel of opportunities in campus.
Okay. If I could follow-up, my follow-up question on this would be when you're looking at the cost cutting side of the equation, obviously you've got some expenditures that were very tightly controlled in the most recent quarter, you talked about -- seeing T&E coming up and some of those expenditures coming back, and I get it that your spending is coming up. But are you also complete on your cost cutting program, or is there still more benefits that accrue over the next quarter or two as we go forward into the back half of the calendar year? Thanks.
Remi, I'll jump in and then you can add. But as Remi mentioned, some of the actions that we took in our fourth quarter, we don't have the full quarter benefit. So you'll see a full quarter benefit as we roll into fiscal '21. But right now the table is set as far as our cost structure. We -- as far as our plans are concerned, we are planning more expense reductions, we're planning sequential growth. Remi, do you want to add anything to that?
No, no. I think it's fair that the majority of the long-term actions are done and if anything spend is going to go up as a result of higher commissions as the bookings recover and higher T&E, although I would say, Alex, that we can keep T&E and most discretionary expenses under very tight control, as you can imagine.
Thank you very much.
Thanks, Alex.
Thank you. Our next question comes from the line of Samik Chatterjee from JPMorgan. Your line is now open.
Hi, good morning. Thanks for taking my question. If I can just ask you about the verticals here, where you seeing strength, government and education that you mentioned, how should I think about the sustainability of this higher demand that you’re seeing, given that you just mentioned that they had sometimes particularly for the education sector, they’re using the opportunity for students not being on the campus, et cetera. What gives you the confidence about this demand level sustaining for a bit longer than just being more temporary? And I have a follow-up. Thank you.
Sure. Samik, if we look at state and local government and education spending, we have a few different buckets. The government entities themselves and then there's K through 12 schools and then there's higher education. So what gives us confidence is all the opportunities that we see in our funnel. And our sales cycle is -- can be anywhere from -- we could see in quarter deals, so we can see deals that take a year plus to evolve. So that -- that's one of the things that we have visibility to in terms of the field and the opportunities we see in the funnel. The other thing that happened this year is our e-Rate filings and you were up 30%. And then what happened this year, which is different from years past is that the government, the USAC started sending out funding letters earlier than usual. So we've seen our wins in e-Rate being funded earlier. And so we have the big pile of opportunities that are just waiting for funding letters to come from the government. And we've had more funding letters sooner than in years past. So this is something that is giving us opportunities. Government spending also remains strong, and we're seeing that across the board. And if you're a university and you've got -- you still have to upgrade your infrastructure. And so I think, cloud for us is giving us more weapons and more tools and the ability to up-level our conversations, where Extreme is a much stronger competitor in these discussions with higher education customers. And I think our position for next year's e-Rate is going to be even stronger and our teams are projecting -- I mentioned 30% growth, even higher growth rates with our combined cloud offerings, which really fit nicely into the school campus environment. So that -- that's what's giving us confidence to make.
Got it. If I can just follow-up, we've been hearing about some supply chain constraints across the board. Is that driving some of your customers to -- and particularly if I look outside the two verticals that are strong, if I look at a general kind of overall enterprise spending, is that driving customers to give you more visibility in terms of their pipeline than you would have ideally at this time, maybe last year? Thank you.
Samik, at the beginning of the quarter, we were worried about the product constraints and supply chain. And this is -- it was something given the fact that we have manufacturing in China and things that were going on, move on, et cetera, et cetera. The reality is it turned out to be a nonissue. There were outreach initiatives to customers to ensure that customers that had network and priorities that they get in front of the line and that they accelerate maybe their buying process in the early part of the quarter. But as the quarter progressed, it became less of an issue. And at this stage, production issues are a complete nonissue for us. So we don't have any accelerated buying baked into our plan.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Christian Schwab from Craig-Hallum Capital. Your line is now open.
Congrats guys on the solid results and guidance. Our return to formal guidance, if we kind of look a little bit further, I know and thank you, I'll echo the commentary that you put on your verticals. But as we kind of begin to come out of this situation into a recovery scenario, can you kind of walk us through the puts and takes of maybe a little bit longer term outlook versus just the next 90 days and how you guys are viewing and preparing for a return to more of the growth environment and at which point you think it might be logical?
Yes. So, Christian, thank you. Thank you for the question. One of the things we started doing this quarter is we started imposing the discipline of our fields and look at future quarters and the funnel for future quarters and cleaning that up. And this is something that it was a practice that we were less disciplined in the past. So we are already looking at the December quarter and we are looking at that funnel of opportunities. We are challenging our teams to clean up the funnel and we are scrubbing that. So that those are the opportunities that we have, and that's what's giving us confidence as we look out further. We have some larger opportunities with strategic accounts that are more engineering oriented, where we're working specifically with them on applications and use of our technology. These are much larger opportunities, and we have a bucket of these opportunities that we are working that are progressing really nicely, that will show up in our fiscal Q2, Q3 and Q4. And so, this is the other area that -- where we look that’s giving us confidence and upside to our forecast. I don't know -- Remi, I don't know if you want to add anything to that. But, in general …
I was going to say it, in general, although we're encouraged by the outlook for fiscal Q1 and based on bookings performance and the strength of certain verticals, we continue to see a gradual recovery. Some of the verticals that we operate in, like retail, for example, or sports and entertainment, the demand there remains muted. In Europe, we do see strength in certain countries. That, for example, which includes Germany, Austria, Switzerland is recovering. Whereas the picture in South, which includes France, Portugal, Spain and Italy is more muted. So we feel like it's going to be a gradual recovery. And Christian, as much as I'd like to provide you better visibility on the rest of the year, we expect normal seasonality to play out. But at this stage, it's hard for us to give you higher visibility on the outlook.
Great. Thank you for that color. And then my last question has to do with gross margins. Now that we're almost done with the entire product refresh, do we still believe that we can drive gross margins for the company above 60%? Is there something we should be paying attention to regarding mix or verticals that would help drive that?
We do, Christian, and I would say that on the product front, we had a specific program that we talked about, which consisted in introducing 40 new product out of the total of 57 that was identified and we're 36, so that is largely done. But the next move for us is to look at the universal hardware platform, which will be common across our pillars from data center campus to edge. And that will drive significant savings in terms of the cost of goods sold on this product. I would argue also that you heard us talk about a 42% growth sequentially in new subscription bookings you should be expecting subscription bookings as a percentage of revenue to continue to increase and that will also drive an improvement in the overall gross margin. So 60% is definitely a target. And we're hoping that actually would be above 60% in the second half of fiscal '21.
Great. No other questions. Thank you.
Thanks, Christian.
Thank you. Our next question comes from the line of Fahad Najam from Cowen and Company. Your line is now open.
Thank you for taking my question. I have a couple of technology, big picture questions for you. One, there's this notion among the investment community that enterprise spending is going to be probably challenged because most employees will be working from home. But correct me if I'm mistaken, but I think the wireless LAN is probably one of the most strategic assets that an enterprise can have in terms of geo locating individuals and thereby enforcing social distancing. Are you beginning to see your wireless LAN use case is kind of develop into the contact tracing and social distancing type of use cases, and do you foresee a significant demand for that? And then second -- let me answer this question and then I have another architectural question that [indiscernible].
Yes. So what we're seeing is exactly what you're pointing out, which is that the enterprise network that [indiscernible] more concentrated when people were at work in the office, in the enterprise, they're now distributed, but they're still working. And so it places more challenges on a distributed edge. And our timing is very fortunate with our acquisition of Aerohive a year-ago because the cloud is a perfect solution for this. And we have a great example, when we were talking to schools globally, and the nice thing about the environment that we're in is that within Zoom, it allows executive engagement at levels that we haven't seen before. So we're on the line speaking to lots of different schools, be it K-12 or higher university, we're talking to other customers where they have work-from-home environment. And the reality is our cloud platform provides a single management and control plane where you have complete visibility to every single client that's connected to the network, and you've got insights into application performance as well as device performance, if you will. So if you're administering a network, all of a sudden you have a cloud platform that's incredibly easy to manage a distributed environment. And that -- our timing was very fortuitous. The fact that we're cloudifying a portfolio and that we have fabric that provides security from the core to the edge. And then we're the only ones that have fabric in the cloud period. And so we're able to provide the IT teams and people that are managing networks, the comfort of having the security and having the information and the visibility to the entire network that is fully distributed now. And businesses as you've witnessed, they haven't shut down. They're still running, they're just running from a remote architecture, if you will, from a networking perspective. And that's where cloud comes in and that's where we feel like we have an advantage and we're running really fast to stay on top of that. So I think your insights are spot on and we have the cloud tools to deliver it, to support our customers during this transition.
All right. So the second related question is, do you foresee an opportunity for Extreme in terms of developing applications that kind of help enterprises in for social distancing rules, right? I mean your Wi-Fi can trace how far people are, how many people are on the floor. Do you foresee an opportunity in monetizing this kind of use case? And if so, are you trying to address this in any way? I'm trying to understand if there's an inflection opportunity for Extreme to address emerging challenges that we have in a unique way, and maybe this is a new market opportunity that you can size upon?
Yes. I mean, if you check out some of our -- what we hash tag, new normal solutions, we -- we've been working with different contact tracing solutions, we have -- when you go into our cloud, we can actually follow a device. We have unlimited data, but we can follow a device or a user throughout an environment. And then that's where we don't have our own contact tracing software, but we can partner with contact tracing applications, and we can provide that visibility, for example. So the answer is yes. There are a lot of people that are working on applications that will tie in really nicely to the cloud and the fact that in our environment and the fact that we're offering unlimited data, and let's say you're managing a campus environment, you can literally follow a device around the campus. And then you can see device interaction with other devices where there's this proximity in terms of contact, you have unlimited data to trace that and trace devices, which -- this is something that we can make it easy to do, and we can make it easy to do that from a centralized location. So the answer is, yes. We have lots of examples of what we're doing. SUNY, the State University of New York system we've been very active with them and working with third parties to develop innovative solutions on this front to help them get back to school, get students back on campus. So, yes, it is turning to applications. We have the perfect platform and we're the perfect partner for software developers and applications, because we can provide them with incredibly rich data to help feed their applications in the new normal.
Thank you. I will take my [indiscernible] questions offline. Thank you.
Yes.
Thank you. Our next question comes from the line of Erik Suppiger from JMP Securities. Your line is now open.
Yes. Thanks for taking the question. Congrats on a good quarter. Can you talk a little bit about the impact on ability to penetrate new accounts versus your ability versus how much of the business came from existing accounts?
Yes. Erik, our mix is -- it's typically 20% new, 80% existing, and that was consistent in Q4. If you heard my comments, some of the stats that I mentioned around marketing, it's really interesting what's going on in the work-from-home environment, in a virtual environment. And I mentioned leveling the playing field. Our marketing and marketing qualified leads are off the charts. It's unprecedented what we're seeing, that's where we get new logos. And also when you think about cloud, there are opportunities for customers to demo and to try and experiment with our cloud by literally just receiving an access point and configuring that in the cloud and then building from there. So we're expecting to see growth in that percentage of our new logos, given what's going -- what we're seeing in the marketing side and what we're seeing in the significant growth in marketing qualified leads, which will be the source of new logos for us. I also mentioned we have a new Chief Revenue Officer as well as a new Chief Marketing Officer that have identified new routes to market, which basically our partners for Extreme, we've never tapped into these partner groups, if you will, that can provide us with new leads. They can fill up the funnel with new logos and new selling opportunities. So the combination of cloud, the combination of the success of our marketing teams in the new normal environment, the virtual environment and new routes to market, we are expecting to see growth in that percentage of new logo versus existing customers. I hope that's helpful.
Yes, that's a surprise. So good to hear. Can you talk about how many of your cloud IQ customers are using you for analytics and for the breadth of capabilities that you have there?
Yes. Eric, we're in the early stages, as far as the analytics are concerned. If you go into our cloud, we have machine learning insights, and what we're doing now is we're launching -- we have a base level, what we call pilot platform, which provides management for customers. And as you know, over the course of the past year, we've added our entire wireless portfolio, and now we've added switching and now we've added core. So you've got edge all the way to the core where you have that management capability. What we're coming out with Zoom is a higher level license, which will be call co-pilot, which brings in automation and it takes machine learning and then it operationalizes that machine learning into operating tasks. So one of the things that we talk about is an auto RMA, for example, where we can identify that an access point is dropping channels and therefore it's not performing, so we automatically send an access point to a customer and it's self provisioned. So you don't need an IT person in a retail store, for example, to replace access point number 39 with a new access point, shift the old one back to get repaired. This is the kind of power. And this is where it really hits home with customers because there are real cost savings involved when you can deliver that kind of machine learning and then automation through the machine learning that eliminates operating expense and IT expense for enterprise customers.
Okay. And then lastly, has the pandemic made much of a difference from a competitive dynamics perspective? Do you think -- have you seen any changes in behavior from the likes of Cisco or HP in light of the pandemic?
Yes. I think, yes, everyone is responding to the new normal. It's harder for larger companies like Cisco to be as focused as we are, because Webex is under fire from other platforms that are more effective and easier to use and more efficient. And we don't have to worry about that. We're focused solely on networking in cloud. We haven't seen a specific competitive response by any of our competitors in the networking, solely focused on the networking space that -- we watch it very closely, but we haven't seen any kind of competitive response that gives us pause or concern.
Very good. Thank you.
Thank you. Our next question comes from the line of Dave King from B. Riley. Your line is now open.
Thank you. Good morning. First question is on HPE acquiring Silver Peak. How does that change the competitive landscape?
Dave, thank you. It doesn't change the landscape at all for us. We've -- it's a very predictable transaction. And HPE -- it was a smart move for HPE to buy them. The purchase price was a bit frothy. I think they were way over the cover bid in that process, but it makes sense for what we're talking about around the edge. The evolving market for the secure application and services at the edge is where this is going and it fits neatly with the new normal, and this is where we've been playing. So we have a brand solution, we have our own SD WAN solution. It's a pretty simple and basic solution that fits into our work-from-home solutions currently. It -- I would just say it's evolving in a very predictable way, given the net new normal and given what appears to be a new focus on distributed networks. And that's where cloud comes into play and this is where we're all focused, right.
Thank you.
So, I think …
Oh, go ahead.
Yes. I would say it's predictable. The move makes sense, pricing acquisition, but no surprise from us.
Okay. And then my follow-up is regarding two verticals. I noticed that health care was changed from positive to neutral and manufacturing from neutral to positive. What drove that -- those changes?
Well, I think on the health care side, what you've seen in the COVID environment, it's starting to get better, but elective surgeries have been postponed and it -- it's put our health care customers under pressure when nonessential or non-necessary procedures have been delayed or postponed in response to COVID. We’re seeing that starting to open back up again, depending on where you are in the world. So that's why health care kind of got shifted to neutral where we've seen some customers delaying spend. But the funnel for health care is strong over the next 6 to 9 months. And then for us, they're continuing, it's important for them to support the networks they have. So services have been very strong in health care. In manufacturing, risky manufacturing, where that convert, and we're seeing the manufacturing spend continue and strengthen as we look at the opportunities that we have in the funnel. So our outlook is really driven by our partners and our field and the opportunities and new opportunities that are appearing in our funnel in out quarters. And so that's what drives our outlook. And so we're seeing strength in manufacturing and we expect healthcare to return, but currently it was neutral in Q4 and we've that outlook for this quarter.
Got it. Thank you.
Thank you. Our next question comes from the line of Ryan Meyers from Lake Street Capital. Your line is now open.
Hey, guys. Just one question for me. I think you said new cloud bookings were up 42% sequentially. When do you think the bookings will be back to normal pre-COVID levels? Or how are you guys kind of thinking about that?
I think I'll make a comment, Remi -- I'll let him comment after I make a comment. We still have a view the recovery from COVID will be gradual. And we don't -- we're not assuming that we snap back, and so we're somewhat guarded in calling for a return to previous spending levels when you see what's going on in the macro economy globally. So I would say that is putting a -- that’s tempering our enthusiasm on the opportunities that we see. So we have to build in that conservatism into our outlook. Remi, would you like to add anything?
Specifically on the subscription bookings, as pointed out, they’re up 42%. We would expect this pace to continue. And actually, as I mentioned in the prepared remarks, we feel like cloud adoption is accelerating with COVID. So the pace of growth in subscription bookings will remain very strong. However, because a lot of it gets deferred in terms of revenue recognition, the impact will be spread over the coming eight quarters. But that bodes well in terms of continuing to increase our subscription revenue as a percentage of total revenue.
All right. Thanks, guys.
Thank you. [Operator Instructions] Our next question comes from the line of Woo Jin Ho from Bloomberg. Your line is now open.
Great. Thank you for taking my question. Ed, how much of the purchasing delays from last quarter reflect on this quarter result, and how will -- how do you think that will play out for your better 2021 outlook?
Thanks, Woo Jin. I -- there were several deals that were pushed into Q4 from Q3, and we saw the same thing in Q4. We had several large deals in Q4, they got pushed into our Q1. So what I would say is, as far as the effect on Q4, we didn't -- we don't feel that the Q4 had a material -- was materially impacted by kind of the spillover from Q3 as we considered deals that pushed into -- to Q4. The one observation that I would make is in the smaller deals and what we would call run rate business and this is business that's below 50,000. We did notice a slowdown in that run rate business, a lot of it is partner generated and flowing through partners or from smaller customers. And we did feel the impact of a slowdown of that run rate business in both Q3 and Q4. And what we've noticed in Q1 is that we're seeing that run rate business come back to smaller deals in $50,000 networking deals, $75,000 deals. There's a lot of these kinds of transactions that are being transacted that we're seeing. And so we feel like if there is a snapback, we're seeing it more in that run rate business. The -- our funnel of larger deals, million dollar plus deals, it's very healthy as well. And we talked about how we created a strategic motion in the field, so we've reorganized the fields. We're going to do a better job of handling those bigger projects, those larger strategic opportunities and then we set up a territory model if we're tightly aligned with partners and also our marketing teams and lead gen teams to do a better job of fielding the new leads and to field more of that run rate business. So we think we're better set up to go after the run rate, as well as to go after strategic in terms of how we're organized. And early in Q1, we've seen a bit of a resurgence of that run rate business.
Got it. And then as for my follow-up, a little bit of a longer term strategic question. Coming out of, I guess, the pandemic closures, has the nature of your customer dialogue change regarding the digital transformation? I mean, you guys have the suite to deliver digital transformation to your enterprise customers. I mean, are you starting to see some of those discussions materialized more fruitfully? And do you think something that would have been a 2 to 3-year type of strategy pull in a lot sooner?
Woo Jin, you’re spot on. And I mentioned it in my comments. I talked -- I made the comment up-leveling our conversation. Extreme is more relevant today than we've ever been. And it's all about cloud and it's all about the ease of deploying secure networks. It's all about intelligence in the network. And all of this is moving more and more to a discussion about data, and the data is what's happening in the network. What are the clients that are connecting? What is the quality of the connections? Where are they on campus? Who are they connecting to? All of this intelligence around what's happening in the network can be very strategic information and can tie into other systems that our customers are running. So the fact that we can provide the insights into what's going on in the data, we can provide the network elements and what's happening to the network and how the network is being managed, what's happening with clients and all of this intelligence we're capturing and we just came out with unlimited data. So you can go back and you can look as soon as you get on our cloud, you have the entire network captured, everything that happened in that network capture. That's powerful. We're the only one that offers it. We're the only one that offers cloud choice. And this is something that's top of mind for our customers. So we can -- we are clearly up-leveling our conversation. We are more relevant now than we've ever been because of how we can provide superior solutions to the other players that are out there in the cloud space. So this is what's giving us a lot of excitement inside of Extreme. We're seeing and we're being included in new opportunities, and we have the ability to up-level and differentiate ourselves, given our cloud and given us focus now on networking as a strategic asset and understanding a platform to understand what's going on in your enterprise from data.
Great. Thank you.
Thank you. We have time for one more question. Our next question comes from the line of Alex Henderson from Needham. Your line is now open.
I got into the second one. Great. I was looking at the expectations on the street and there's a pretty wide range of outlooks for revenue for the FY '21 period. It ranges from $900 million at the low end to as high as $953 million at the high end. And at the high end, that would represent growth on a year-over-year basis versus the just reported year. So I guess the question is, how do you feel about that range? Do you think it's reasonable to think that you were in the middle of that range? Do you think you could be at the high-end? Any sense of how you want us to think about that relative to -- obviously, a more constructive tone than what I think some people were expecting coming into the print.
Remi, you want to take that?
Yes, I was going to say when you provide that range of $900 million to $950 million, you look at the midpoint of $925 million. At this stage, we feel that that's reasonable. Obviously, we were hoping that as we see the recovery, we can do better than that. But as I mentioned, some verticals are showing strength. Other remains muted. Some geographies are encouraging, others are still slowly coming out of COVID. So to think about a revenue in the middle of that range at this stage is not -- is reasonable. And obviously, as we continue to build our funnel, hopefully we can give a more encouraging message, but it makes a lot of sense.
So the other question I wanted to address was just below the line, can you give us some sense of what you're thinking in terms of interest expense in CY '21 -- FY '21 and a little -- maybe a little guidance on the tax rate. Obviously, I've been asking this question of virtually every company that's reported, because with near zero interest rates out there, it's pretty tough to generate any interest in cash balances. And on the other hand you've had some changes in your credit situation that make it harder for us to know what to forecast there.
Yes. So, three months LIBOR is at 25 basis points. I wish I could say that this is what our term loan A is going to cost us, but under the amendment of our term loan A, we are LIBOR plus 450. So right now we see interest and other, because there's a few things in there as well at around $6 million a quarter or $24 million for the year as a whole. And as far as tax is concerned, we typically guided that at around $2 million a quarter or $8 million for the full year, and that's mostly state and local taxes. And taxes in some of the countries that we operate outside of the U.S., specifically Ireland, which is our second tax principle. But because of NOLs, we don't pay any federal income tax in the U.S. So about $2 million a quarter is what you should be modeling.
Perfect. That's very helpful and good luck with the prints. Thanks.
Thank you.
Thanks, Alex.
Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Ed Meyercord for closing remarks.
Okay. Thanks, Gigi, and thanks everybody who could join us today. I want to shout out to Extreme employees who are listening in the air for the job well done during what are unprecedented times for us. Our teams haven’t missed a step and they're doing great work. So thank you. Now more than ever for our customers and our partners who are tuning in, we are here with our cloud and what we're able to deliver. We can provide now more than ever the resources, solutions and flexibility to navigate during COVID. And then for ambassadors, we -- I encourage all of you to attend our upcoming Connect Conference, which is September 16 and 17. It's 100% virtual, so it's easier to attend. We have a chock full of information. We are on [indiscernible] 10,000 attendees and we're going to offer an investor track as well. So you'll be hearing more about that in the future, but we would love to have you join us at Connect, and we appreciate your participation on the call. Thanks everybody and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.