エクストリーム・ネットワークス（EXTR）2027年度第1四半期決算説明会：増収とガイダンス引き上げ

要点

• エクストリーム・ネットワークスが発表した2027年度第1四半期決算は、売上高が前年同期比10%増の3億4,100万ドルとなり、製品売上高は同12%増の2億1,800万ドルとなりました。
• Non-GAAP EPSは前年同期比50%増の0.33ドルとなりました。営業利益率は410ベーシスポイント拡大して17.4%となり、調整後EBITDAは同47%増の6,600万ドルに増加しました。
• SaaSの年間リカーリングレベニュー（ARR）は約2億6,500万ドル（前年同期比22%増）に達しました。サブスクリプション受注の過半数を「Platform ONE」が占めており、経営陣は年度末までに顧客の50%以上が同プラットフォームに移行すると見込んでいます。
• 同社は2027年度の通期売上高見通しを14億200万ドル〜14億1,200万ドルに引き上げました。これは中間値で前年比10%の成長に相当します。
• 経営陣は、大企業からの大口案件獲得、Wi-Fi 7へのアップグレード、Platform ONEの採用拡大、競合他社における混乱、および製品の堅調な供給体制を主な成長要因として挙げました。
• 部品コストは利益率の面で懸念材料であるものの、経営陣はメモリ価格の上昇は業績見通しに織り込み済みであり、サプライチェーンの見通しは2028年度まで十分に確保されていると述べました。

主要財務実績

事業および業績の動向

エクストリーム・ネットワークスは大企業顧客の開拓を推進しました。取引額が100万ドルを超える顧客数は前年同期の36社から44社に増加しました。経営陣によると、測定期間によるものの、100万ドルを超える案件パイプラインは20%以上拡大しているとのことです。

Platform ONEの導入が加速し、サブスクリプション受注の過半数を占めました。経営陣は、同プラットフォームの顧客利用率が前年度末の10%から2027年度末には50%を超え、翌年度には約80%に達すると予想しています。新規顧客向けの営業活動は本プラットフォームを中心に展開されており、既存顧客は主に契約更新時に移行が行われています。

顧客獲得の実績としては、21の病院と約600の医療・介護施設をカバーするキャンパスネットワーク刷新や、ハードロック・スタジアムにおけるWi-Fi 7およびスイッチング機器の導入・刷新が挙げられます。また、英国の医療機関、ドイツの自治体ITサービス、70以上の支店を持つオーストリアの銀行へのPlatform ONE導入実績も強調されました。

9月初旬、Agent ONE CoworkerがすべてのPlatform ONE顧客向けに提供開始されました。経営陣は第1世代製品と比較して10倍の導入率を達成し、重要なプロアクティブ推奨事項の98%に対して回答が得られたと報告しています。Agent ONE Coworkerはサブスクリプションに含まれています。

MSPプログラムのアクティブな事業者は前四半期の74社から85社に拡大して当四半期を終えました。従量課金ベースの請求額は前四半期比で21%増、前年同期比で131%増となりました。

南北アメリカおよびEMEA地域で力強い売上成長がみられました。アジア太平洋地域の売上高は前年同期の比較対象が高水準であったため減少したものの、同地域のパイプラインは引き続き堅調であり、2027年度は全地域での成長予測を維持しています。

業績見通し（ガイダンス）

経営陣は、2027年度通期の売上高成長率予測を中間値で10%に引き上げました。また、SaaS ARRの成長率は今年度の残り期間中も20%超を維持すると予想しています。

同社は、年次セールスキックオフ、AIサミット、諮問委員会イベントなどの販売・マーケティング活動により、第2四半期の費用が季節要因で増加すると見込んでいます。にもかかわらず、経営陣は収益性が現在の拡大軌道を維持すると見込んでいます。

リスクと注目点

• 価格環境は、製品サイクル、販売ミックス、需要、および部品コスト上昇の価格転嫁の影響により、流動的な状況が続いています。
• メモリ価格の上昇は、公表された利益率および業績予想にすでに織り込まれています。経営陣は価格設定によって一定の柔軟性が得られると考えているものの、大手の競合他社ほど積極的な値上げは行っていません。
• 2027年度は、従来型のサポート契約からPlatform ONE契約への移行期にあたります。経営陣によると、これによりリカーリングレベニューの収益認識において一時的かつ技術的な押し下げ要因が生じているとのことです。
• アジア太平洋地域の当四半期の売上高は、前年同期の比較対象が高水準だったために減少しました。
• 顧客の機器更新サイクルやHPEとジュニパーの統合に関連する競合機会の活かしかたは、エクストリーム・ネットワークスが案件パイプラインを確実に受注へ繋げ、製品の供給体制を維持できるかにかかっています。

アナリスト質疑応答の主なポイント

供給と利益率：経営陣は、売上高が供給面から重大な制約を受けることはなかったと述べました。同社はメモリやその他の部品を確保しており、サプライチェーンの見通しは2028年度まで十分に確保されています。メモリ価格の上昇は現在のガイダンスに含まれていますが、価格改定や将来的な部品コスト削減の可能性が利益率の支えとなる可能性があります。

Platform ONEへの移行：経営陣は、年度末までに顧客の利用率が50%を超えると見込んでおり、ExtremeCloud IQからの移行は最小限の運用負担で完了できると述べました。新規顧客の開拓活動はPlatform ONEを中心に行われています。

AIのマネタイズ：Agent ONE CoworkerはPlatform ONEのサブスクリプションに含まれています。経営陣は「オペレーターモード」を導入し、「エージェントアクション」を通じて自律機能をマネタイズすることで、新たな収益源を創出する計画です。また、オンプレミスのAIワークロードおよびデータ主権の要件に対応するため、2027年暦年の前半にExchange Zonesの提供を予定しています。

業績見通しの引き上げ：経営陣は、2027年度の成長予測を引き上げた理由として、Platform ONEの導入加速、リカーリングレベニューの好調な推移、12%の製品成長、大企業案件の見通し向上を挙げました。

競合からのシェア奪取：顧客がシスコの価格体系やポートフォリオの複雑さ、さらにHPEとジュニパーの統合に伴う不透明感を検討する中、好機が継続していると経営陣は述べました。エクストリーム・ネットワークスは、統合された有線・無線プラットフォーム、Campus Fabric、総所有コスト（TCO）の優位性を差別化要因として強調しました。

決算説明会文字起こし（全文）

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Hello, everyone. Thank you for joining us, and welcome to Extreme Networks First Quarter 2027 Fiscal Year Financial Results Conference Call. [Operator Instructions]

I will now hand the conference over to Stan Kovler, Senior Vice President, Finance and Corporate Development. Please go ahead.

Stan Kovler

Thank you, Jade. Good morning, and welcome to Extreme Networks first quarter fiscal year 2027 earnings conference call. I'm Stan Kovler, Vice President of Finance and Corporate Development. With me today are Extreme Networks' President and CEO, Ed Meyercord; and Executive Vice President and CFO, Kevin Rhodes. We just distributed a press release and filed an 8-K detailing Extreme Networks' financial results for the first quarter. A copy of the press release, which includes our GAAP to non-GAAP reconciliations and our earnings presentation is available in the IR section at extremenetworks.com.

Today's call and Q&A may include certain forward-looking statements based on current expectations about Extreme's future financial and operational results, growth expectations, new product introductions, supply chain dynamics and management strategies. All financial disclosures made on this call will be on a non-GAAP basis unless stated otherwise. We caution you not to put undue reliance on these forward-looking statements as they involve risks and uncertainties that can cause actual results to differ materially from those anticipated by these statements. These risks are described in our risk factors in our 10-K and 10-Q filings. Any forward-looking statements made on this call reflect our analysis as of today, and we have no plans to update them, except as required by law. Following our prepared remarks, we will take questions.

And now I will turn the call over to Extreme's President and CEO, Ed Meyercord.

Edward Meyercord

Thank you, Stan, and thank you all for joining us this morning. Revenue grew 10% year-over-year, marking Extreme's seventh consecutive quarter of double-digit revenue and product revenue growth. Non-GAAP EPS increased 50% year-over-year as we continue to translate strong top line performance into even faster earnings growth. SaaS ARR accelerated to 22% year-over-year growth and reached approximately $265 million.

Based on the combination of our performance, visibility into customer demand, strong funnel growth, continued share gains and accelerating adoption of Extreme Platform ONE, we're raising our expectations to 10% growth for both the second quarter and full year fiscal 2027. We expect our SaaS ARR growth to exceed 20% for the rest of the year as well. We continue to outgrow the market, expand within larger enterprises, win competitive opportunities and strengthen our position as customers increasingly standardize on our AI-powered integrated networking platform.

Customer demand remains strong. Our open funnel grew at double-digit rate with strength in all regions. Our regional POD strategy with a strong focus on specific verticals is helping us win more of the opportunities we pursue. Our disciplined execution and supply chain strategy give us ample product availability to convert that demand into revenue.

There are 3 key pillars driving our growth. First, we're moving upmarket. We booked 44 customers at over $1 million this quarter, up from 36 a year ago, largely due to our technology differentiation. Our Campus Fabric takes complexity out of the network with zero-touch provisioning, sub-second recovery and built-in segmentation that helps prevent lateral attacks. Our Wi-Fi is built to perform in complex high-density environments, keeping users connected and applications running reliably. That differentiation, along with our simplicity and lower total cost of ownership is helping open new doors and win bigger deals.

Second, Platform ONE adoption is accelerating as a result of continued innovation and now accounts for over half of our subscription bookings. Customers want a single AI-powered platform that integrates security and networking to help reduce complexity, simplify operations and manage their wired and wireless environments in one place. Third, market conditions are working in our favor. Competitor refresh cycles, Wi-Fi upgrades and the disruption from the HPE and Juniper integration are creating a multiyear opportunity. Supply is also a differentiator. Our components are secured through calendar '27, while our competitors are quoting extended lead times.

These advantages matter most when customers are making large high-stakes decisions and our recent wins show it. One of the largest integrated healthcare networks in the United States chose Extreme for a campus transformation, spanning 21 hospitals and roughly 600 care locations. Where network availability directly affects patient care, Campus Fabric delivered the automation, resiliency and segmentation the customer needed. Within the first month, support tickets dropped over 90%. When customers evaluate Fabric through a proof of concept, the differences become clear and our win rate is excellent.

Wi-Fi refreshes is another important driver of our success. Hard Rock Stadium in Miami selected Extreme to replace its aging Wi-Fi 5 environment with Wi-Fi 7, supported by a full switching upgrade. In addition to Dolphins Games, the network will support events like the Formula 1 Miami Grand Prix and the Miami Open, providing the capacity and lower latency required to support tens of thousands of fans simultaneously streaming, sharing content, making mobile transactions and using digital services. This deployment demonstrates how these Wi-Fi refresh wins create an opportunity to then sell our entire infrastructure portfolio.

Platform ONE is a key growth engine that strengthens our recurring revenue. Customers value the simplicity of managing their wired and wireless on a single AI-powered platform. We have a number of Platform ONE customers across verticals, including Cambridgeshire & Peterborough NHS Trust Foundation in the U.K. where Platform ONE will manage the Extreme wired and wireless network, delivering enterprise security and operational resilience across the healthcare organization's clinical sites.

regio iT, the largest municipal IT service provider in North Rhine-Westphalia, Germany, will leverage Platform ONE to manage its Extreme Wi-Fi 7 networks across hundreds of sites, helping municipalities, schools and utilities deliver digital services with less IT overhead. One of Austria's largest banks chose Extreme over a long-time competitor to refresh its wired and wireless networks across more than 70 branches, all managed through Platform ONE. With its cloud-first strategy, Platform ONE will give the bank's network team centralized cloud-based management at scale.

Last week, we held our second Annual AI Summit in Amsterdam, bringing together senior IT leaders to discuss industry trends and share our longer-term vision. We showcased early Agent ONE momentum and previewed the industry's first on-prem enterprise AI infrastructure for networking. Extreme's AI understands each customer's network topology, history and operating context, turning that insight into practical recommendations and measurable productivity.

Agent ONE Coworker, our next-generation AI agent, reached all Platform ONE customers in early September and drove a 10x adoption rate over the first generation. Its signature feature is Nudge. Unlike conversational AI, which waits for someone to ask the right question, the Nudge feature proactively surfaces timely contextual recommendations inside the workflow and 98% of critical nudges got a response. 58% of cases open through Agent ONE Coworker arrive with everything our engineers need to begin troubleshooting so work starts sooner.

At Hill College in Texas, the CIO said his team solved a wireless outage in minutes with Agent ONE, a task that would have taken a full morning. It also helped the team respond to a device on the guest network running crypto mining software by tracing the device through the access points, narrowed its location and resolved the security issue that could easily have gone unnoticed, all within minutes. In calendar '27, we will make Agent ONE operator mode available to customers. It will execute tasks independently within defined governance boundaries, respond to events in real time and run scheduled workflows, learning from each outcome to become more effective over time, creating autonomous AI.

We also previewed Extreme Exchange zones expected in the first half of calendar '27. Exchange zones bring enterprise AI on-premise, letting customers run the same applications locally or in the cloud with full control over data residency. This will allow customers to comply with data sovereignty requirements, which have become increasingly important in international markets. Exchange zones will also pool spare compute across their extreme access points and switches. None of our direct competitors offer this.

Our MSP program is also gaining traction, closing the quarter with 85 active MSPs, up from 74 last quarter. Consumption billings grew 21% quarter-over-quarter and 131% year-over-year. Platform ONE is already contributing to that growth. Our funnel remains strong. We are expanding with larger customers. Industry disruption continues to create share gain opportunities. We have the supply availability to meet customer demand. And the differentiation of Platform ONE and Agent ONE are strengthening our recurring revenue growth and strategic relevance with customers.

Now let me turn the call over to Kevin to discuss our financial results and guidance.

Kevin Rhodes

Thanks, Ed. I'm pleased to report strong first quarter financial results. Starting with revenue. Total revenue of $341 million exceeded consensus and the high end of our guidance range, representing 10% year-over-year growth. Product revenue of $218 million grew 12% year-over-year, indicating strength of customer demand above our typical seasonality. We are continuing to see growth in both wireless revenue, especially with Wi-Fi 7-based products and in wired switching as well. This marks our seventh consecutive quarter of double-digit year-over-year growth in product revenue, demonstrating strong demand and our continued strong go-to-market execution.

The industry pricing environment continues to be fluid, and we expect this dynamic to continue based on a combination of product cycles, mix and demand as we pass through component cost increases. Recurring revenue of $119 million grew 7% year-over-year, aided by SaaS ARR growth of 22%. As we previously stated, fiscal year '27 is the transition year where legacy support contracts are subsumed into Platform ONE contracts, the fastest. We expect a sharp reacceleration in recurring revenue growth in fiscal '28 coming off our balance sheet as SaaS deferred revenue ramps this year. Through the transition, we expect continued improvement in free cash flow and margins.

Turning to the first quarter margins. Gross margin of 62.6% was up 130 basis points year-over-year and above the midpoint of our guidance. We're pleased that we were able to preserve our price advantage over our competitors, while passing on component cost increases. We've also solved for memory needs by executing on our supply chain strategy, providing us with ample supply to meet demand and good visibility into gross margins. Earnings per share of $0.33 accelerated to 50% year-over-year growth and above the high end of our guidance range.

Geographically, we had strong revenue growth in the Americas and EMEA. In Asia Pac, while revenue fell due to elevated prior year comparisons, we continue to win large deals in the region and our funnel remains strong there. We continue to expect growth across all regions in fiscal '27. Operating margin expanded to 17.4% in the quarter, up 410 basis points from the prior year quarter and 170 basis points sequentially and well above the high end of our guidance range. We also generated $66 million of adjusted EBITDA, up 47% year-over-year, and our adjusted EBITDA margin of 19.2% was up 480 basis points year-over-year as well.

If you look back 2 years ago, we have nearly doubled our profitability as a company. We continue to achieve operating leverage through healthy growth as well as prudent cost management, thus outperforming in the first quarter. In the second quarter, while we plan for seasonally higher expenses due to sales and marketing expense, such as our annual sales kick-off, AI Summit and advisory council events, just to name a few. We continue to expect our profitability to maintain its current course. Over the long term, we continue to drive operating leverage as we scale.

In terms of cash flow, we generated $39 million of free cash flow and ended the quarter with $245 million of cash, our highest cash balance since fiscal '21 and a healthy $45 million of net cash. This was during a quarter in which we repurchased $25 million worth of shares and made strategic memory purchases, of which we now have $36 million of memory on our balance sheet. We are effectively generating cash and using it strategically while returning cash to shareholders and maintaining a healthy balance sheet. On a vertical basis, we experienced broad-based strength with particular standout bookings growth in education, manufacturing, healthcare and sports and entertainment. We mentioned a few of these wins in these customers earlier.

Looking at the second quarter and the rest of the year, we're increasingly confident in our ability to achieve double-digit revenue growth. In the second quarter of fiscal '27, we expect revenue to be in a range of $345.8 million to $350.8 million, gross margin to be in a range of 62.2% to 62.7%, operating margin to be in a range of 16.4% to 17.4% and earnings per share to be in a range of $0.32 to $0.34 per share.

For the fiscal year '27, we are increasing our guidance as follows: we expect revenue to be in the range of $1.402 billion to $1.412 billion, up 10% year-over-year at the midpoint. Gross margin, we're expecting to be in a range of 62.3% to 62.8%, operating margin to be in a range of 17.2% to 17.6% and earnings per share to be in a range of $1.35 to $1.39 per share. We expect our fiscal '27 non-GAAP tax rate to be 21.8% for the year.

And with that, let's now turn the call over to the operator to begin the question-and-answer session.

Operator

[Operator Instructions] Your first question comes from the line of Ryan Koontz from Needham & Co.

質疑応答

Ryan Koontz

Nice results and guide. Nice to hear the business is humming here. With regards to gross margin and supply and memory specifically, any particular things you'd point out with regards to availability in terms of your strategy, how that's playing out and how we should expect gross margins to fare going forward? It's nice you guys have supply, but I think we've all been -- investors have been worried about cost here. So maybe you can shed some more light on that. Nice job, though.

Edward Meyercord

Yes. Thanks, Ryan. And yes, our teams got on this early. And what we've tried to do is flip what is a negative in terms of constrained supply into a positive because we have plenty of memory. You will see the cost pressure in our gross margin number because you'll see the higher cost of memory embedded in what we just announced. But the bottom line is that we are -- we've got full supply out well into fiscal '28. And for us, what we see is an opportunity to provide shorter lead times than what's out there for the industry. So we continue to remain in a strong position on that and the higher cost of memory is built into the gross margin that we just reported and our guide.

Ryan Koontz

Got it. And the pricing environment allows you to essentially raise price to offset that?

Edward Meyercord

That's right. We've been a little more conservative than our larger competitors in raising price. We hear this from distributors, partners and customers that the bigger players have been raising price more aggressively. So I would say we still have room there, but we've been able to deliver the margins with what we've done so far.

Operator

Your next question comes from the line of Mike Genovese from Rosenblatt Securities.

Michael Genovese

So Platform ONE bookings are over 50% of subscriptions, up 5x from last year. Could you just -- what are you saying now? You might have said on the call, but if you could repeat it, about where you're going to be at the end of fiscal '27? And how much is new logos versus conversion of existing customers?

Edward Meyercord

Yes. And let me cover the first part, and Kevin, I'll let you jump in on the new logo number if we're sharing that. But Mike, by the end of this year, we expect half of our customers to be on the platform, which it's the fastest move and migration that we've ever seen. But we've -- at the end of this past year, we had 10% of our customers on the platform, and we would expect that number to grow to over 50% of our customers on Platform ONE at the end of this fiscal year. And then that number growing to approximately 80% the following year.

So the adoption has been very high. Our teams commercially have done a great job positioning and selling Platform ONE. I think you can see demand for the most modern industry tools and also the differentiation that we bring. It does, from a new logo perspective, the market is interested in how to leverage AI and how to leverage modern networking tools, the most modern networking tools as they consider investments into the future. So it's giving Extreme more at-bats and more opportunities.

Kevin, I don't know if we're sharing exact percentages in terms of new logo, but I would expect new logo adoption to be closer to 100%.

Kevin Rhodes

I would agree, Ed. That's what I was going to say. It's like, when we're going to market right now, Mike, we are going to market with Platform ONE. And that is all new logo activity. That's where we're kind of center staging, focusing that technology for that new logo. And then, of course, you've got the movement of the migration of all the customers into Platform ONE as well. And that happens more episodically as they come up for renewal. But we are seeing tremendous success in existing customers moving over into Platform ONE. And it's not a big lift for them to move from XIQ into Platform ONE. We saw even one customer, a hospital system, do it in 40-some-odd minutes. So it is -- you get the benefit of the AI and you get the benefit of all the new technology that we're building there. And so people were eager to go and move. So we don't have percentages there that we're sharing, but I would say it's really strong across the board.

Michael Genovese

Great. Great. And then just for my follow-up, on the -- just the monetization of Agent ONE Coworker and then also Exchange zones. Is this monetized through the subscription, through utilization? Does it pull through hardware? Like how do we think about monetizing these things?

Edward Meyercord

Sure. Yes, and they're different. So we came out with Coworker in September, which was our second-generation AI platform, if you will. And that's where we made the move from what we would call conversational-based AI, which is where the industry is, simply put, you have to prompt AI in order to get an answer. So it's sort of -- it's almost chatbot-ish where people are having to converse if they want to use AI.

In this case, Coworker is conversational. It's included in the subscription. So all of our customers have it. And that's what we're excited about. And we mentioned 10x the usage because it's always on. It's context aware of your network. It's always on, it's ambient, it's proactive and it's watching what you're doing. And if it feels that it can support you or if it can highlight, let's say, a network issue or a solution or suggest a workflow, et cetera, it's going to do that. And so that's that nudge we're talking about.

So now that's built into the platform. And what we're seeing is the customer adoption and engagement with our platform, which is our -- we're already on our second is far greater than what we have with what was our old AI expert. When we move into operator mode, which does contain the governance element of our agents, -- so that element of operator is already out there. But we're introducing new features and new capabilities like what we said in terms of localization of data as it relates to data sovereignty, some people wanting to keep workloads in the enterprise on campus without going out to the cloud, survivability from a security standpoint, if you don't want to get disconnected from the cloud and you want to hold the workloads local. That's what's coming out in operator mode.

And the big change for Extreme from a revenue perspective will be in token economics for Extreme. We're calling tokens agent actions. And these agent actions will bring in a new stream of revenue for Extreme. And this is where we're talking about unlocking data in the network for other use cases outside of traditional network management. So the idea that we can work with stadium customers and enhancing the fan experience or the patient experience or supporting caregivers in a health care environment or retail outcomes from a supply chain standpoint or from a consumer standpoint.

The list goes on and on, and there's a lot of different ways when you think about the network being literally in the middle of everything, the network being strategic and all the data in the network, this is where we're excited in the second half of calendar '27 -- I'm sorry, in the first half of calendar '27, the second half of our fiscal to bring operator mode to bear for customers. And we're already working with what we're calling our foundry customers on applications and ways to leverage data from the network in this new platform.

Operator

[Operator Instructions] Your next question comes from the line of Eric Martinuzzi from Lake Street Capital Markets.

Eric Martinuzzi

Yes. Ed, you commented on your 3 key pillars of the growth story. I wanted to focus in on the upmarket move. I think when you exited FY '26, you guys were talking about the $1 million-plus opportunities in the funnel up by mid-teens kind of year-over-year. Where does that stand today? Obviously, you had good success in Q1, but where are we with the 9 months to go in the fiscal year?

Edward Meyercord

Eric, it's actually up a bit. So I think you would see that, that number would be up over 20% depending on the period that you're looking at because our funnel, obviously, we slice and we're looking at it by quarter for the next -- for the rest of the fiscal year. So we see these opportunities continuing to grow and that percentage in the funnel growing beyond the mid-teens number that we discussed.

Eric Martinuzzi

Terrific. And then I'm always curious about competitive displacements, but the Austrian bank win back that you described, first of all, sort of why did they leave? And then second of all, why did they come back?

Edward Meyercord

Yes. One of the -- I mean, in that case, this was a win against one of the largest players in the industry, I should mention. So it was less about them leaving. It was more about them coming to Extreme. We talk about Cisco fatigue in the marketplace and that ebbs and flows. When we look at our solution set, we're bringing simplicity and we're bringing a focus on end-to-end networking solutions, all in one platform with a highly differentiated fabric technology for campus and a very competitive wireless solution. So I think when all this gets packaged up, we wind up being, I think, more compelling from a technology perspective. And I think from a commercial perspective, a lot more attractive as people evaluate total cost of ownership.

We have some large wins. We've had -- in virtually all of our geos where we're getting in the door with some very large opportunities, and we're having success converting those. We mentioned a $10 million win with a very significant healthcare company in the U.S. this past quarter that is essentially a new logo win for Extreme and a displacement of a large customer. And again, it's that fabric technology that people like. It's the combination of our Wi-Fi and our ability to support highly complex environments. And then it's putting it all together end-to-end, wired, wireless, the whole portfolio is in a platform. And our competitors have software that sits on top of other software. So they still keep the distinct user interfaces of all those software platforms running. And really, you're just left with an over-the-top software. We actually have a legitimate platform where there's one interface for all the technology. And having everything in one place and then having these new AI tools is very compelling for customers.

Eric Martinuzzi

Got it. Congrats on the quarter and outlook.

Operator

Your next question comes from the line of Tomer Zilberman from Bank of America.

Tomer Zilberman

Can you hear me?

Edward Meyercord

Yes, we got you, Tomer.

Tomer Zilberman

Great. Two questions for you guys. Maybe to start off with the guidance raise, right? You went from 8% guide previously. Now you're going back to 10%, which is more in line with your long-term framework that you set out for us last year. I just want to ask effectively what changed, right? Is it a quicker transition through the subscription to the Platform ONE that you previously said that would be a transition year this year? Is it better demand on the product front? Is it kind of a byproduct of maybe pricing increases given the supply constraints we're seeing? Where is the additional growth coming from?

Edward Meyercord

Well, Tomer, you hit the nail on the head. It's both. So we're ahead of plan in terms -- on the recurring revenue side in terms of the adoption of Platform ONE, which has been the big driver of growth. We look at the year-over-year comparison of being in the, call it, low single digits a year ago into the mid-20s a year later in terms of adoption of Platform ONE subscription. So that has been driving a higher recurring revenue number than maybe we had earlier. And so we have the confidence we see that continuing going forward.

The other is 12% product growth, and that's driven by the opportunities we have in the funnel. Eric asked about some of these larger opportunities in terms of these $1 million-plus opportunities and what does that growth look like. It's a very healthy outlook in terms of the funnel of opportunities we have. If you recall, we now have -- we have 20 different pods. We're forecasting and driving growth for each one of those in terms of funnel creation, and we're carefully evaluating how we're converting on these funnels. And so we're extremely tactical in how we're managing this and have visibility. So from the bottoms up, the call is coming from confidence sort of at the pod level of the funnel creation and funnel conversion and our confidence in delivering a higher number.

Tomer Zilberman

Got it. Maybe as a follow-up then, talking about the pipeline opportunity. I just want to understand where are we in this competitive displacement cycle? Meaning, we've talked for some time now about the opportunity to displace the top 2 incumbents, one, Cisco because of channel disruption; and two, Juniper and HPE and their integration challenges. Do you see the same level of displacement opportunity that you may have seen a year ago? Or are these companies -- is the integration between the two tightening and getting better and maybe channel disruption is not as big of an opportunity as it was, say, a couple of quarters ago?

Edward Meyercord

Yes. I think the opportunity is as good as it's been. We're seeing as it relates to -- I'll just hit HPE Juniper first. People may have seen their ads about self-driving network and their ad is very far away from the truth of what they're actually delivering to customers, and that's not lost on customers. And there's a discrepancy between wired and wireless and cloud and non-cloud. And Mist has had a very strong competitive position, and they've fallen back. And then there's a question about how the Aruba portfolio and how that will even fit. They said those 2 product portfolios won't come together.

So if you're an enterprise customer making a long-term decision, it's -- there's a -- it introduces a fair amount of risk depending on where your technology sits today. Cisco is focused on a lot of other things besides networking, and they're the most aggressive in raising price. And so if you're looking for the most complicated bundle of solutions and the most expensive, it's Cisco. And a lot of customers don't want to have everything together. They'll look and say, I'd like the best-in-breed. Cisco compared to, let's say, Extreme and Palo Alto, there's much better value and capability going with the Extreme Palo solution and having best-of-breed as opposed to paying a lot more and having a lesser solution from this larger entity.

So it's just -- these -- they create disruption and share opportunities. That's at the customer level, but also within the channel and at the channel level. And Cisco is -- they are asking customers. Right now, they're meeting in Vancouver. They're asking their channel partners to do a lot more to try to sell the entire portfolio. And that's not necessarily what people want in the networking world where buying cycles are different, buyers are different and there's not necessarily this synergistic fit between what they're trying to match together. So that creates some frustration and it creates opportunities for us where people view their ability to make more money from the channel where they can make more money with Extreme in the networking side.

Operator

Your next question comes from the line of Dave Kang from B. Riley.

Dave Kang

My first question is regarding the supply chain situation. Just wondering if any revenue was left on the table. And my follow-up is on gross margin. Just wondering if your long-term target is still mid-30s, which is about, what, 200 bps away. Just wondering what the catalyst will be to get to that mid-30s.

Edward Meyercord

Yes. Dave, I'll take it at a high level. Starting with the question about supply chain, we don't feel our numbers are constrained. So I would say, we -- and going forward, we continue to market this with our distributors and with channel partners to make sure the word is out that Extreme has supply. There's -- every quarter, there's always some level of product constraint that might happen at the end of the quarter where maybe products don't ship out. So -- but it's at normal levels for us, not at unusual levels.

In terms of the gross margin, we see a step function in our recurring revenue and our recurring revenue margins will contribute. As you know, we're putting together service and subscription in the Platform ONE bundle, and that creates some technical issues, and it's a technical drag on revenue in the years of heavy migration that we're in right now. And that recurring revenue growth rate that we called in the mid to now higher single-digit range, will step into the teens and will step into the 20% range overall for recurring revenue. And given the margins of recurring revenue, that will be a big driver.

Kevin, do you want to comment maybe with a little more granularity?

Kevin Rhodes

I think you're right there, Ed. That's what we're expecting is we're expecting this acceleration, especially in SaaS deferred revenue as we sell more and more Platform ONE subscriptions, you'll get the Rule of 78 benefit where you see more revenue coming and contributing next year of what we sell this year and the same with the year after. And so you're going to see more higher value, higher contribution revenue come into the model over the next couple of years, and that's going to lift us.

The other concept here, Ed, as well is that we do expect some of these memory costs and other component costs to come down over time. But we're in an environment where prices have never gone backwards. And so we should be able to see some improvement in product margins over time as well, a, from a scale perspective, but also just component cost reductions over time to where we maintain our pricing. So I think we've got a couple of levers here to drive improved gross margins over time on that front.

Operator

At this time, there are no further questions. I would now like to turn the call back to Ed Meyercord, CEO, for closing remarks.

Edward Meyercord

Okay. Well, thank you all for joining us this morning. It was a strong quarter. And as we're calling, we see the continued momentum in the business. We have just a shout out to our employees who are listening in. We appreciate all of the hard work and all of the effort to deliver on the outcomes. Thanks, everybody, and have a great day.

Operator

This concludes today's call. Thank you all for attending. You may now disconnect.