So much for joining us.
Hey, Tim. Thanks.
Kevin, can you, I know this is a very simple question, but I kind of always like to start out. Can you give us a little bit of an overview? How do you, how do you explain, you know, Extreme to investors, what your different, you know, solutions are, and you know, how those solutions are differentiated in the market?
Yeah, sure, Tim. I'm happy to. So I would describe Extreme as an enterprise-level, pure-play networking company. And we provide, you know, kind of a network, yeah , the way you want it. Flexibility in terms of hosting environment, we manage our hosting environment with our cloud management software in all three public clouds. We enhance operational efficiency and security with our layered network with auto-provisioning fabric technology. And we allow for seamless integration with existing infrastructure that could be some other, you know, networking vendor, but we don't disrupt your workflows or incur unnecessary costs to do so. So our technology can see all others' technology. And our business model, I say, is one of the most simple in the networking industry, right?
Licensing, flexible models like, you know, network infrastructure as a service. We've just come up on board with an MSP model. And we have what I consider the very, very best support organization out there. All of our support engineers are locally assigned, and they are, you know, they work directly with you, until your issue's solved, which there's no transferring from Tier1 to Tier 2 to Tier 3 like we hear with some of the other competitors. So those are the major differentiation points around the company. And the company, of course, there's many others, but we just think of ourselves as a pure-play networking company that you'll, you'll fall in love with.
I have an awful lot of questions, but you know, just on this point of what... how you're differentiated. You seem to be very focused on the convergence on a new platform between networking security and AI. Do you think your competitors are doing that? Or you know, why are you maybe better positioned to kind of converge all these? And then the third part of that, you know, what platform are you converging them on? Yeah.
Yeah. So, you know, we have a cloud, you know, management network today that we are starting to, you know, put more security like, you know, zero trust and network access, cloudifying our network access technologies together, and we're gonna roll that out at the beginning of the calendar year, called Extreme Platform One. And this Platform One, our thinking is, it's kind of a convergence of networking, security, and AI, all into one, you know, holistic platform. We believe that we can leapfrog the competition on the AI side. There's a number of different areas that we are investing in, but, you know, what-if scenarios, network intelligence, are two examples of just use cases that we are going to enable our customers with.
Obviously, a knowledge base that they can go in and just ask queries about networking and networking technology. Those three use cases we think will be very interesting to our customers. In particular, for instance, if you've got an issue within your network, let's say you've got particular customers or and employees that are asking about the network and saying that they've got Wi-Fi issues, whether it's dropping or it's slow or whatnot, you can go and query the network with our AI, and it will, like, literally test and ping, you know, different access points, and it will come back and tell you where it's seeing problems within the network.
As opposed to IT folks trying to look at log files for hours and hours and hours and try and diagnose, this is like a triage service that's gonna come back to you and say, "Ah, I see where the problem is. This is where you need to go and focus your time and attention." That's gonna save a lot of people a lot of time and a lot of effort, you know, managing their network. And of course, there's just the natural fabric technology that's auto-provisioning and just easy to set up, and we apply, you know, all of your, your security, you know, patches and policies, you know, across the network very easily and seamlessly.
You can bring up an access point within two minutes, you know, in an area, and it self-configures, and you're up and running. So that's really good for the enterprise market.
How is this new Platform One different from your existing Fabric platform? Can you maybe describe what Fabric is, and is this an evolution of that or an addition to that?
Yeah. Think about it as a convergence of everything together in one licensing model for all the technology we have. Right now, for instance, you can buy Pilot, which is our cloud management software. Then you can buy CoPilot, and then you can buy Universal ZTNA software, you know, SD-WAN. All of these together, you know, are kind of individual purchased elements across our platform today, and we're basically bringing those together in a good, better, best kind of strategy that you can go and buy. And think about it as a E5 versus E3 subscription within Microsoft. You've got the best of all the worlds there for you to buy from. And then we'll continue to layer newer technologies into that, and so you'll see the benefit of a SaaS provider.
You see the benefit of new features and functionality coming at you over time, and in some cases, you're just gonna get the benefit of that, depending on what, you know, feature you're in, you know, what class you're in, in the good, better, best strategy.
Sorry, when do you think this will launch again?
It'll launch in the beginning of the calendar year. Call it early in our Q3 timeframe, in the January, February, March timeframe.
And so it sounds like, basically, it's a brand-new product, it'll be kind of brand-new pricing, I'm assuming also. Do you think this will help grow, you know, ARPUs or, or revenue over time?
Yeah, I mean, our thought is, again, to simplify. Simplify. We're already simple, and now this is more simplification because now it's all the best of all the technologies that we have that are bundled together, and so you get bundled technology in a easy-to-use, and it bundles both support and subscription, you know, software together, so you get the benefit of getting all of that at the exact same time with one price. And so our thought is that that's gonna be a lot easier for people to consume. And the other thing that we're doing as part of this for investors is that today we have an option for people to buy this cloud management software or our support, and as we roll out this new platform, it's gonna be a mandatory attach.
To your point, Tim, we are going to get a benefit of more attach against every hardware purchase, and that's going to drive, you know, our software and subscription revenue, you know, in the future.
Have you ever given your existing attach rate of, you know, these software products?
We have, and broadly speaking, we're about 65% of the time we attach, you know, support and subscription to hardware sales, and sometimes it's higher on the access point side than it is on the switching side, but for the most part, it's around 65% overall.
Just remind us what percentage of your revenue is it?
Right now we have subscription support's about $416 million on an annualized basis. We just did $104 million this last quarter, so about $400 million.
Your total revenues?
Our total revenues, this next year we came up with a range of $1.1 billion-$1.13 billion, so somewhere in the $1.1 billion, you know, low $1.1 billion.
We're approaching, like, 40% of revenue is,
That's right. That's right.
About 39% right now.
Of our revenue is on that recurring revenue side.
I mean, if I'm just doing the math, if we go from, you know, 70% of sales including this, you know, to 100%, you know, that's mathematically, you know, 40% increase in software sales theoretically.
Yeah. Yeah, our goal, our goal in the next 3 to 5 years would be to eclipse 50% of our revenue, even higher, maybe, I don't wanna get up on my skis, but, you know, maybe above 60% of our revenue as being recurring revenue, at some point in the future. We, we do believe, a- and I come from, as you know, a, a SaaS background, you know, I highly believe in the recurring models and driving the recurring revenue. It gives you more predictability. It's got higher margin profile, right? Our, our subscription margins are in the 85% range. Our support margins are in the 74% range, this last quarter, and so it's a much higher margin business than you have on the product side, which tends to be in the high 50s-low 60s.
We are very keen to drive more and more recurring revenue, and I love the visibility and predictability of it.
With all these new products and features, do you think even for existing customers taking a SaaS product, they're getting more features and functionality, or you have to charge more for it?
We don't think so. We think that we're gonna be able to bundle these features, and you can choose a good, a better, or a best strategy that works for you.
Yeah.
Just like I said, you know, whether it's Adobe, or whether it's Microsoft or others, you can choose the level of, of product, and features and functions that fit your needs. And so if you want universal ZTNA, that's gonna be in a different category than the lower category, and so if you choose that you want to go there, then, then you can. We think that people will wanna move up and buy, you know, the higher level, subscription services because they're gonna get more value. And what they don't need to do then, with the convergence of networking and security and AI coming together, is that we can end up being, at some level, a one-stop shop.
You don't necessarily have to go buy a bunch of bespoke technology solutions that sit on top of your network, that effectively we can, over time, build out all the functionality that you need across all of that.
Exciting times. It seems like you should have a kind of a change in the trajectory of growth here, but you know, just looking at the overall industry, revenues have been kind of pretty lumpy the last few years. I know you know, COVID had a lot to do with this, and you know, there have been supply chain issues and a lot of other issues kind of going on. Could you just remind us why, you know, just at a high level, why was growth so strong, and why has it weakened? And you know, where do you think we go to the next couple of years? When do we kind of reach a normalized level, and why for the overall industry?
Yeah, I mean, and we all know this, but just a refresher, right? We came off post-COVID, you know, all manufacturing shut down. A lot of people were worried about being able to get networking gear. They got in line, end customers and distributors got in line, which inflated demand over a period of time. Then the inventory started to come in. Lots of people took a lot of that inventory, some people taking spares and putting them on their shelves, others stocking up, afraid that they won't get the inventory. And then there was the lull period of, "Geez, I've got so much inventory. I don't need to buy right now," and we went through that. And now we've come to a point now where at least Extreme is completely normalized. We've normalized our backlog.
Our backlog, as we have said in the past, normally is in the $75 million-$100 million range. We believe that we are there. We're slightly below the $75 million, but not much, and so we believe that that's gonna be... Our book-to-bill ratio now is, you know, ahead of one, and so we are still seeing bookings coming ahead of revenue, so that's good. And our distie inventory is normalized, as we talked about in Q3. Really wanted to normalize that heavily in Q3 and then finish that up in Q4. And last but not least, our own, you know, inventory that we have. We still got too much inventory, the reality, you know, for what we need, but we're gonna cash flow that inventory, about $141 million of inventory.
We'll cash flow that out and generate about $60-$80 million of increased cash flow this year to normalize our own inventory. But with the reserve that we took, you know, for excess inventory at the end of the year, we do believe that we are, we are, again, you know, right-sized and clear from a, you know, inventory perspective on our end as well at this point. So, you know, the way we've described it is kind of clean and clear for FY 2025 and beyond, we feel at this point.
So how do you kind of measure the total TAM that you're going at? And is that, you know, changing with this convergence? And what do you think that TAM grows at?
Yeah, I mean, it's a big TAM. I mean, Stan reminded me of the TAM. A $20 billion-$30 billion TAM that we're going after, somewhere in that range for, you know, switching and, and wireless access points. What we see as an opportunity here in the future, you know, is-
Mm-hmm
... is, number 1, we're getting more at-bats, right? Extreme Networks is starting to be viewed by the market as a real enterprise-grade carrier that can absolutely replace some of the larger guys that are out there. 2, we're really simple to do business with, not only from a licensing perspective, but also our support is the best, and our technology literally stands up head-to-head. In some cases, our technology has got better, you know, defect rates than even the Ciscos or the HPs out there, and we can go head-to-head any day of the week with our hardware versus, you know, hardware. And then you have, in addition to that, some of these competitors are just gonna be distracted for the next 3 to 5 years. So it's like Cisco just bought Splunk.
They've just announced, I don't know if you saw this last week, but they just announced more layoffs coming on the Cisco side. They had 4,000 employees that came out in February. They've got more layoffs coming. You know, we're good. We restructured a bit, you know, in Q3, and we have no more restructuring coming our way. And so from our perspective, we believe that we are poised for growth and for the future. And then on the HP Juniper side, right, a lot of fear, uncertainty, and doubt around what the roadmap looks like, how is that gonna converge together. They've already announced, as part of the deal, that they absolutely have to have synergies, cost synergies. But Juniper, their recent kind of, you know, financial reports have not been as strong as what HP expected them to be.
So are there more, you know, synergies that need to occur and more people coming out? Do they have to raise prices in order to pay for the acquisition? There's a lot of, you know... Do they have to actually divest? We've heard, you know, of the storage business. That's, you know, one of the center points of GreenLake. There's a lot of challenges with that we believe over the next year that are gonna come out of HP, Juniper combining. And if you're an HP customer, you know, they buy Juniper for a reason. And so are they really gonna stick with the HP Aruba technology over the next three to five years? We're concerned about that.
So you have less than 10% market share. You think your overall market is growing, can grow, like, on a normalized basis, like 5% per year, and you guys can, you know, pick up, you know, 50 basis points, not to put words in your mouth, but you guys could pick up 50 basis points market share a year, so you can grow more like 10-15 in a normalized long-term environment?
Yeah, I mean, that's, so this year is a little bit more of a challenge year, as you know, Tim, right? You know, we're coming Q1 and Q2 have got tough comps against them. But then Q3, Q4, we're gonna show pretty strong growth, well above the 10%-15% growth that you're just talking about. And then we get into 2026 and 2027 and beyond, and we look at those as as real strong opportunities for us to continue to achieve, you know, double-digit growth there. The question is, how does the market, you know, go over the next two years? But we believe as a strong... You know, we'll then be, at that point, the third largest provider in the industry as the HP Juniper acquisition occurs.
We are already the second largest cloud provider in the industry. And then with our AI technology, as that takes off, we believe that that will help us and give us, you know, wind in our sails in the future.
So if I'm an enterprise, and I upgraded my network, you know, 7 or 8 years ago, like, or 5, 6 years ago, obviously, during COVID, it was hard to do a lot of this stuff, and then maybe, you know, it's maybe the networks are kind of running end of life. Do you have a sense of, you know, the existing networks that are out there? Are we, you know, in for a bigger upgrade cycle, or is it just kind of a normalized upgrade cycle? And then roughly, how long do you think these, you know, networks last that are built out there?
Yeah. So on the length of a network lasting, some will refresh every four or five years. Others will kind of sweat their assets more in, like, six or seven years, but that's generally speaking, the timeframe. And of course, it really depends on how much network, you know, data is being transferred across your network and how your business is changing. We see the advent of, for instance, biometrics. You know, you're walking into stores now, and they're doing facial scans, or airports are doing facial scans. That network has to read the face very quickly, ping some sort of database, come back and say that person's cleared. That's gonna drive more network usage over, you know, time.
The advent of AI, we don't know how much AI is going to generate more network flow, but we know that a lot of people are really, you know, beefing up, you know, overall, you know, data centers as a result of the need for AI. Well, how are AI queries going to manifest themselves? Through the network. I mean, at the end of the day, you've got someone at the other end, at the edge, that's querying and trying to get the AI query to come back to them. All of that requires network flow... and so as more AI occurs, that's more and more network traffic.
And as you think about it, if you're an enterprise, you've got your security cameras, you've got your normal networks, you're gonna have to layer that network and provide different levels of, you know, technology-advanced network in order to do all that. You don't want that to slow you down. And so we see, you know, while those are the kind of refresh rates, we see more and more this advent of network refresh over time.
And so each and every year, there's a new part of the network that someone's looking to upgrade, as opposed to it all being one fell swoop at the end of a 3-5-year cycle, is that, "Well, this portion's 5 years old. Let's network that. You know, let's refresh that." And so they're taking pieces of their network and refreshing it constantly over that period of time. We see this, you know, in many of the different industries that we participate in, so-
But do you think the average age of the existing networks has been pretty stable, like, I guess 5-6 years? You think, it hasn't elongated or shortened?
Don't think it's elongated for sure. I do believe that it might start to shorten a bit because, you know, just like Moore's Law of technology innovation, the more and more we see of network usage across the network, your Wi-Fi 5 network, your Wi-Fi 6 network is going to be too slow for that, that technology innovation that occurs over time. And so we, we are seeing, you know, faster networks. And we see, you know, different radios and different, you know, 6 GHz , you know, bandwidth versus 5 GHz bandwidth as a good example of 6E versus Wi-Fi 6, and that, you know, enables people to have a much better, you know, flow of data coming through on that, on that spectrum.
So where are you yourself with building 6E inventory and even Wi-Fi 7? And you know, how much of a, you know, improvement is this for enterprises?
So, you know, at the end of this year, I mean, as we were contemplating what our inventories looked like in the fourth quarter, because we bought so much in Q3, we were looking at a lot of Wi-Fi 6 and realizing this is Tantamount to us trying to sell a three-year-old new car, right? No one wants to buy a model-year 2021 new car. The reality is they want the 2024 or the 2025. And so even though it's brand-new gear, the reality is the technology itself is being, you know, you know, obsolete. You know, not totally obsolete, but will be obsolete in a couple of years, and who wants to buy brand-new technology that's gonna be effectively obsolete in a couple of years?
So we see 6E and 7 as real, the harbinger for growth for us in the next, you know, two, three years, and that's primarily in our markets in EMEA and in Americas. You'll see more Wi-Fi 6 used in LATAM or Asia Pac and some of the, you know, less-developed markets, but for the really strong, developed markets, we see 6E and 7 as being the areas where people are interested in.
So are you shipping 6E now?
We're shipping 6E right now. Yeah, we tend to be the very first actually out there with these new technologies. It's just part of we're more nimble, we're smaller, but we are on the forefront of the technologies. We were one of the first to announce Wi-Fi 7. It is... You can buy Wi-Fi 7, 7 from us right now. 6E is where most of my inventory between switching and access points, but of the $141 million of inventory we have right now, almost most of that is Wi-Fi 6E and some 7.
That 6 GHz spectrum that you can use on 6E, has that been a major improvement for quality?
It's a major improvement. We actually looked at just side by side same internet usage in the building, but I had my IT guy look at just on 6 GHz versus 5 GHz, and there was, like, a 4x difference in the throughput that you would get just in the office. So it's pretty remarkable.
Yeah, that absolutely is. How about the price points for 6E versus 6? Is it more expensive?
I mean, 6 is now being more commoditized because it is older, but I would say, why would you buy for a hundred dollars versus $110? Why would you buy technology for $100 that's just gonna be obsolete in a couple of years? So we see some price difference there, but I don't think it's enough to manage, you know, through that and to buy old technology.
It's maybe 10%-20% more for 6E versus 6?
Yeah.
Very good. And, why, you know, what are some of the new use cases? I know you touched on them, but it's kind of interesting. You know, if I have 4 times more capacity, are you seeing any, you know, interesting new use cases right now? And, like, particularly how it integrates maybe with AI.
Yeah, AI use cases, I mean, the thing that I think is most interesting is this kind of, you know... There's a what if feature in there. What if I made changes in my network in a certain way? How would that look? So I think that that's an interesting kind of use case on the network. What's going wrong within my network? Like, if I've got, you know, a particular area, I can, you know, hone the AI into an area and have it look at particular, you know, access points within a certain area. There are a number of different use cases that we see. Even a knowledge base is just support tickets, right? If you, if you're trying to get an answer to a question, we've got literally-...
Tens of thousands of pages on our support, you know, you know, within our support organization that we've now put into this large language model that will enable you to get an answer to those questions. And so there's just a number of different use cases that's gonna help, you know, our customers, you know, manage their networks better and more efficiently over time, which we think is really great.
I was referring a little bit more maybe to what the enterprises are using it for. You know, just make it up a little bit. When I was in a retail store here in New York, half the items are locked up. You know, it's just a bit inconvenient to be able to shop. And you know, you say to yourself, "If they had really good facial recognition, you know, if they know someone has shoplifted there before, you think they would refuse to allow them in the store." But you know, and probably many other use cases that we don't really-
Security, security is certainly one. I would say customer experience, Tim, is probably the big, you know, driver for a number of customers. I'll give you two examples, right? Within the stadium business, where we own, you know, a really strong market share across that, they want you to have, like, the... Walk through the ticket, and it knows on your phone that the ticket's there, right? There's no barcode scanning. There's no, "Show me the tickets." It's just, "We know you've got a ticket. It's on your phone. Just walk through, you know, and, and go to your, your seats." And then also traffic within the stadium. Understanding if the beer line is too long in one area or if the, you know, go to the bathroom line is too long, too.
Where do they see flows of traffic within the stadium, and how do they manage that from a customer experience? You know, walking into a kiosk, tapping your credit card, it recognizes who you are. You go through, and you shop. You buy five or six items, and you walk out. There's no cash register at the end of that. That's one really good use case. Kroger is doing the same thing in their stores, where they look at and have security cameras, so there's security there, but also customer experience is really great as well. And then, you know, just, just in general, like, for instance, manufacturing, right?
Being able to use more IoT and IoT devices across your network, but segmenting your network efficiently for those IoT devices and being able to, you know, make the manufacturing facility, you know, more efficient. We do plenty of those, you know, companies, but one example would be the warehousing for FedEx, and making sure that we're, you know, able to help them, you know, track all the packages that they have, you know, throughout the entire, you know, country and the world. And that runs through the network, of course.
And some of those, like, you know, grab and go, where, you know, at a stadium when everyone's there at the same time and other retail locations, it just seems like it's so convenient. Do I need 6E to kind of really do that well? And, you know, I would assume for the stadium, the returns on the network are phenomenal, that they would deploy, like, 6E relatively quickly, but not to put words in your mouth.
Yeah, no, no, no doubt, and, like, a good example would be the Taylor Swift concert. We've kind of shown this before. The Taylor Swift concert that was here at the Gillette Stadium, it trumped what... By the way, also, we do the Super Bowl, and we have the NFL. You know, it trumped the usage of video and posting to Instagram or whatnot, more than what the Super Bowl was. So when you've got these very large, like, concert-like venues, you need to have a Wi-Fi experience that's, that's, you know, really, you know, second to none, and you, and you can't do that off Wi-Fi 6. You need the 6E, and in some cases, people are starting to throw 7 in there, in order to get the great fan experiences that you're looking for.
How much better is 7 gonna be versus 6E, do you think?
It will be better. I think it's got three radios. Stan, tell me if there's any difference there beyond the three radios, and it's certainly got the different 6 GHz spectrum. I think it's a little bit faster than 6. It's got different use cases, right, around IoT, and that there's more IoT devices that can go into a Wi-Fi 7 than a Wi-Fi 6E. I don't know if there's anything-
Yeah, Tim, it's a more deterministic technology, so the promise has always been that, can we get more of the traditional wired networking replaced by wireless? And so wireless, in many cases, was best efforts in terms of the previous technology. With Wi-Fi 7, you're gonna have a more deterministic flow, and you'll be able to take over more of the wired use cases. So that's why you hear Kevin talking about IoT. It's, you know, your example of the walk-out store, he can put different systems on different bands and then also, you know, with much more reliability that you'll have stable connections across multiple elements.
How much, like, how much more expensive is 7 than 6E, and when will that really start to take off? I guess, do you think we're in for, you know, with both of these technologies, are we in for kind of a major upgrade cycle? Like, when did 6E really become cost-effective, where you have the supply, where you know, you can kind of get it out there, and now you have all the support on the platform, you know, combined? Yeah, should we see an accelerated upgrade cycle by the enterprises?
Yeah, I would say a couple things. One, Wi-Fi 6 is still being sold. I would say 6E is starting to eclipse it, you know, in terms of what customers are demanding right now for different technologies. But I'd say it's more of a, you know, 5% Wi-Fi 7, you know, 50% Wi-Fi 6E, and maybe, you know, 45% is Wi-Fi 6. We are starting to see 6E being the de facto standard across, you know, people who are buying, just because of the, you know, the different gigahertz and just the cost benefit is not as high, and it's starting to get more compressed, right? Where we see 7 taking off is we see 7 taking off maybe towards the end of this year, and we see kind of 6E-...
Fading away, and where 6E is really going to start to take hold, you know, across the board on everything. We just announced recently, Tim, an outdoor 6E as well. So not only indoors, but also outdoors, and that was a new kind of technology development that we had. And Stan, keep me honest, I don't think anybody else has a 6E outdoor like we do as well.
Yeah, I haven't seen any. So we were first to market with 6E, and then we were first to market with 6E outdoors. And Tim, you bring up a great point, because one of the things that happened because of the supply chain cycle was that because of the delay in the upgrade cycle, now that timeframe for 6E and 7 is compressed. And what we're also seeing is that in the past, you've had these product cycles that have been over four or five years. So when the next technology would come out, the pricing gap would be a lot more expensive, you know, 2-3x the mainstream product line.
And what we're seeing now is that, that, upside, that, premium, is actually going to be compressed when 7 comes out to try to drive that tech, evolution and, and the tech volume, because supply chain is there. And also, I think we feel like, as an industry, the market is getting ready to go there as well. So it's gonna be an interesting cycle, because if the price premium for 7 is, is lower, you'll have a little bit faster transition than a traditional transition that you have from these, product cycles.
We think... You know, you asked a question about the, the Wi-Fi 7 pricing versus 6E. You know, I think it's going to be more expensive, but I think it's in that maybe 30%-40% more expensive range as opposed to 2-3x. You know?
This is actually data that Dell'Oro Group looked at as well, so we're looking at some of the studies that they've done.
Got it. And, Kevin, what do you think is the right... You know, EBITDA margin has been a little volatile here, but you had a great quarter, I know, and gross margins, you had a great quarter. Could you just talk about what you think the right long-term EBITDA margin should be for this business?
Sure. And you know, so a couple things. Let me sprinkle in gross margin and operating margin, EBITDA margin. When we think about, right, gross margin, we hit 63.5% this quarter. Did not have as much professional services as we had in the past, and so we enjoyed a better kind of, you know, support and subscription, you know, margin of about 74% versus historically 71, 72. We do believe that we are getting really close to getting that 64% long-term range, and that that's going to continue to get us to, you know, it, you know, that, you know, kind of, 64%-66%, and then we think we can eclipse through that at some point in the future.
Again, depending on this principal attach, how much of that, you know, gets, you know, gives us a boost in the arm, if you will, over a period of time, and how, what percentage of our overall revenue becomes subscription and support, given 85% and 74% margins are the profile there. So we, we do see, you know, real visibility over the next two years, getting to the high end of that range. On the operating margin rate, last year in the Q4 timeframe, we were on 17% operating margins. When you go to EBITDA, you probably have to add, like, another 1-1.5%, in addition to the operating margins.
We think that we can get, you know, back up to that 17%-20%, you know, EBITDA margin level here in the nearer term. And I think long term, you know, we would think about 20-25, maybe even higher margin there, depending on, you know, the gross margin inflection point as well. We're excited about driving more profitability. Getting back to, you know, $0.25 in EPS is kind of our target for Q4 of this year. About $300 million in revenue and about $0.25 in EPS. And if we can get there, obviously, we're back at $1 on an annualized basis in Q4, and we think that that's got, you know, real good ramifications for what the stock price will look like.
That's for sure. Exciting times. You guys got a lot going on, and, you know, great job with the products. I know it's been a volatile environment, but it sounds like that's basically behind us. Congratulations.
Yeah, yeah. I think the systemic issues that we saw post-COVID are behind us now, and now it's really about, you know, gaining market share, going after... You know, we've got a lot of disruption happening in the marketplace outside of us, right? And we're just the de-risk solution for a lot of customers. That's some of the marketing message that we are landing with right now is very high-touch support, very good technology, and we're the de-risk solution. Those three things tend to land very well in the marketplace right now for us.
So we're just about out of time, but I guess, you're producing now or, you know, if you hit those numbers, a real decent amount of free cash flow, and you have a great balance sheet. You know, any thinking what you're gonna do with that free cash flow?
Yeah, I mean, I you know, I think, I think we will be in the market, you know, buying back some shares here. You know, as we think about, you know, recovering some cash flow first, but then getting back into the market and, and looking at buying some shares. That's certainly on the horizon for Stan and I as we think about, you know, uses of cash in the future. And there, there clearly could be, you know, some opportunities from an inorganic perspective to look at some potential acquisitions, but that would be probably at a tuck in, you know, sort of nature at this point, and nothing, nothing, you know, too too radical.
You know, I know we touched on the margins there, and that seems very healthy, but do you have to maybe spend a little bit more on R&D for AI and security and these other products, or can you partner with people or, you know, make acquisitions yet?
We are partnering, or we're definitely partnering. We're partnering with Microsoft, partnering with Intel, you know, AWS and others around, you know, the AI, the AI technology. Those are all partnerships that we have announced recently, and we're excited about the contributions we get from those companies. So yeah, it's, it's... Those are not necessarily, you know, technology partners that we have to, you know, pay money for. These are technology partnerships where they're seeking to work with us, 'cause they do believe that we're a leader in the industry, which is great.
That is great. Well, guys, we're out of time. I really, really appreciate it. Look forward to getting an update.
Great.
Great rest of the week.
Thanks, Tim.
Bye, guys.
Thank you.
Thanks, Tim.