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FOR IMMEDIATE RELEASE
For more information, contact:
Extreme Networks
Investor Relations Public Relations
408/579-3030 408/579-3483
investor_relations@extremenetworks.com gcross@extremenetworks.com
EXTREME NETWORKS REPORTS FISCAL Q3 RESULTS
Strategic Transformation Remains on Track
SANTA CLARA, Calif.; April 28, 2011 - Extreme Networks, Inc. (Nasdaq: EXTR) today announced financial results for its 2011 fiscal third quarter ended March 27, 2011. For the quarter, total net revenue was $75.7 million, as compared to $78.2 million in the third quarter of fiscal 2010. Previously updated guidance to investors was for net revenue of $75.5-76.5 million.
“We've made good progress as we continue to reposition the company to address high-growth verticals within the broader Enterprise, Service Provider, and Data Center markets,” said Oscar Rodriguez, President & CEO of Extreme Networks. “We have focused our product portfolio and investments to target those key market verticals to accelerate future growth and investor returns. Our strategy is on track and already showing results in the targeted vertical markets.”
In the third quarter the Company reported a non-GAAP net loss of $4.6 million or a loss of $0.05 per diluted share. That compares to a non-GAAP net income of $5.4 million or $0.06 per diluted share in the third quarter of last year, and to non-GAAP net income of $5.1 million or $0.06 per diluted share in the 2011 fiscal second quarter. Non-GAAP financial results exclude the impact of stock-based compensation, restructuring charges and litigation settlements. A reconciliation of GAAP to non-GAAP financial measures is included in the accompanying financial tables.
Net loss on a GAAP basis for the quarter was $6.8 million or $0.07 per diluted share, including the impact of a $5.4 million charge to discontinue a product. That compares to GAAP net income of $3.7 million or $0.04 per diluted share a year ago, and GAAP net income of $8.9 million or $0.10 per diluted share in the fiscal 2011 second quarter.
For the quarter, total net revenue in North America was $26.1 million, revenue in EMEA was $32.7 million, and revenue in APAC was $16.9 million. That compares to revenue in North America of $32.6
million, revenue in EMEA of $31.1 million, and revenue in APAC of $14.6 million a year-ago.
Total cash and investments increased $5.0 million from the fiscal 2011 second quarter to $146.7 million and the Company has no long-term debt.
2011 Fiscal Fourth Quarter non-GAAP Financial Guidance
For its 2011 fiscal fourth quarter ending July 3, 2011, the Company currently expects net revenue to be in a range of $80-$85 million and non-GAAP net income of $0.03 to $0.05 per diluted share.
Conference Call and Slide Presentation
Extreme Networks will host a conference call to discuss these results today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). The conference call may be heard by dialing 1-877-303-9826 (international callers dial 1-224-357-2194). A 7-day replay will be available following the call by dialing 1-800-642-1687 (international callers dial 1-706-645-9291). The conference call passcode is 58473013. In addition, a live webcast and replay of the call will be available at http://investor.extremenetworks.com. Financial information to be discussed during the conference call will be posted in the Investor Relations section of the company's website www.extremenetworks.com.
Non-GAAP Financial Measures
Extreme Networks provides all financial information required in accordance with generally accepted accounting principles (GAAP). To supplement our consolidated financial statements presented in accordance with GAAP, we are also providing with this press release non-GAAP net income/(loss), non-GAAP operating income/(loss) and non-GAAP earnings/(loss) per diluted share. In preparing our non-GAAP information, we have excluded, where applicable, the impact of restructuring charges, share-based compensation and litigation settlements. We believe that excluding these items provides both management and investors with additional insight into our current operations, the trends affecting the Company and the Company's marketplace performance. In particular, management finds it useful to exclude these items in order to more readily correlate the Company's operating activities with the Company's ability to generate cash from operations. Accordingly, management uses these non-GAAP measures, along with the comparable GAAP information, in evaluating our historical performance and in planning our future business activities. Please note that our non-GAAP measures may be different than those used by other companies. The additional non-GAAP financial information we present should be considered in conjunction with, and not as a substitute for, our financial information presented in accordance with GAAP. We have provided a non-GAAP reconciliation of the Condensed Consolidated
Statement of Operations for the periods presented in this release, which are adjusted to exclude restructuring charges, share-based compensation expense and litigation settlements for these periods. These measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures for comparable financial information and understanding of the Company's ongoing performance as a business. Extreme Networks uses both GAAP and non-GAAP measures to evaluate and manage its operations.
Extreme Networks, Inc.
Extreme Networks delivers networks for the mobile world. The company's open network solutions enable a quality user experience, providing a platform for improved business agility. From the converged mobile edge of enterprises to virtualized clouds, and from data centers to global carrier networks that backhaul mobile traffic, Extreme Networks' extensible services architecture helps set a foundation for mobility, user awareness and faster performance to empower people and machines to connect and move seamlessly. Extreme Networks is headquartered in Santa Clara, California, with offices in more than 50 countries worldwide. For more information, visit: www.extremenetworks.com
Extreme Networks is either a trademark or registered trademark of Extreme Networks, Inc. in the United States and/or other countries.
# # #
This announcement contains forward-looking statements, including our guidance regarding future results, that involve risks and uncertainties, including statements regarding the Company's expectations regarding financial performance and product introduction. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including, but not limited to: a challenging macro-economic environment both in the United States and overseas; fluctuations in demand for the Company's products and services; a highly competitive business environment for network switching equipment; the Company's effectiveness in controlling expenses, the possibility that the Company might experience delays in the development of new technology and products; customer response to its new technology and products; the timing of any recovery in the global economy; risks related to pending or future litigation, and a dependency on third parties for certain components and for the manufacturing of the Company's products. The Company undertakes no obligation to update the forward-looking information in this release. More information about potential factors that could affect the Company's business and financial results is included in its filings with the Securities and Exchange Commission, including, without limitation, under the captions: “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and “Risk Factors,” which are on file with the Securities and Exchange Commission.”
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
|
| | | | | | | |
| March 27, 2011 | | June 27, 2010 |
| (Unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 50,379 | | | $ | 51,944 | |
Short-term investments | 44,865 | | | 64,854 | |
Accounts receivable, net of allowances of $1,455 at March 27, 2011 and $1,780 at June 27, 2010, respectively | 34,948 | | | 42,057 | |
Inventories, net | 18,821 | | | 21,842 | |
Deferred income taxes | 345 | | | 392 | |
Prepaid expenses and other current assets, net | 8,689 | | | 3,932 | |
Total current assets | 158,047 | | | 185,021 | |
Property and equipment, net of accumulated depreciation of $73,681 at March 27, 2011 and $89,544 at June 27, 2010, respectively | 42,364 | | | 43,572 | |
Marketable securities | 51,484 | | | 18,561 | |
Other assets, net | 15,860 | | | 15,731 | |
Total assets | $ | 267,755 | | | $ | 262,885 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 13,945 | | | $ | 18,543 | |
Accrued compensation and benefits | 14,984 | | | 16,305 | |
Restructuring liabilities | 1,319 | | | 3,097 | |
Accrued warranty | 2,508 | | | 3,169 | |
Deferred revenue, net | 31,803 | | | 29,552 | |
Deferred revenue, net of cost of sales to distributors | 15,506 | | | 18,345 | |
Other accrued liabilities | 19,089 | | | 13,381 | |
Total current liabilities | 99,154 | | | 102,392 | |
Restructuring liabilities, less current portion | — | | | 273 | |
Deferred revenue, less current portion | 6,791 | | | 7,633 | |
Deferred income taxes | 112 | | | 731 | |
Other long-term liabilities | 529 | | | 2,661 | |
Commitments and contingencies (Note 3) | | | |
Stockholders’ equity: | | | |
Convertible preferred stock, $.001 par value, issuable in series, 2,000,000 shares authorized; none issued | — | | | — | |
Common stock, $.001 par value, 750,000,000 shares authorized; 131,442,871 issued at March 27, 2011 and 129,827,715 at June 27, 2010 | 131 | | | 130 | |
Treasury stock, 39,625,305 at March 27, 2011 and June 27, 2010 | (149,666 | ) | | (149,666 | ) |
Additional paid-in-capital | 961,698 | | | 956,792 | |
Accumulated other comprehensive income | 3,367 | | | 1,100 | |
Accumulated deficit | (654,361 | ) | | (659,161 | ) |
Total stockholders’ equity | 161,169 | | | 149,195 | |
Total liabilities and stockholders’ equity | $ | 267,755 | | | $ | 262,885 | |
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| March 27, 2011 | | March 28, 2010 | | March 27, 2011 | | March 28, 2010 |
Net revenues: | | | | | | | |
Product | $ | 61,065 | | | $ | 63,197 | | | $ | 200,611 | | | $ | 178,425 | |
Service | 14,634 | | | 15,000 | | | 44,056 | | | 45,478 | |
Total net revenues | 75,699 | | | 78,197 | | | 244,667 | | | 223,903 | |
Cost of revenues: | | | | | | | |
Product | 33,062 | | | 26,689 | | | 94,786 | | | 77,606 | |
Service | 6,074 | | | 6,154 | | | 18,501 | | | 18,421 | |
Total cost of revenues | 39,136 | | | 32,843 | | | 113,287 | | | 96,027 | |
Gross profit: | | | | | | | |
Product | 28,003 | | | 36,508 | | | 105,825 | | | 100,819 | |
Service | 8,560 | | | 8,846 | | | 25,555 | | | 27,057 | |
Total gross profit | 36,563 | | | 45,354 | | | 131,380 | | | 127,876 | |
Operating expenses: | | | | | | | |
Sales and marketing | 24,830 | | | 24,534 | | | 74,823 | | | 70,815 | |
Research and development | 11,237 | | | 11,290 | | | 36,126 | | | 37,345 | |
General and administrative | 6,066 | | | 6,128 | | | 18,614 | | | 19,893 | |
Restructuring charge, net of reversal | 1,043 | | | 371 | | | 1,043 | | | 4,004 | |
Litigation settlement | (49 | ) | | — | | | (4,249 | ) | | — | |
Total operating expenses | 43,127 | | | 42,323 | | | 126,357 | | | 132,057 | |
Operating (loss) income | (6,564 | ) | | 3,031 | | | 5,023 | | | (4,181 | ) |
Interest income | 298 | | | 408 | | | 959 | | | 1,118 | |
Interest expense | (36 | ) | | (29 | ) | | (95 | ) | | (98 | ) |
Other (expense) income | (161 | ) | | 51 | | | (320 | ) | | (66 | ) |
(Loss) income before income taxes | (6,463 | ) | | 3,461 | | | 5,567 | | | (3,227 | ) |
Provision (benefit) for income taxes | 378 | | | (215 | ) | | 767 | | | (42 | ) |
Net (loss) income | $ | (6,841 | ) | | $ | 3,676 | | | $ | 4,800 | | | $ | (3,185 | ) |
Basic and diluted net (loss) income per share: | | | | | | | |
Net (loss) income per share - basic | $ | (0.07 | ) | | $ | 0.04 | | | $ | 0.05 | | | $ | (0.04 | ) |
Net (loss) income per share - diluted | $ | (0.07 | ) | | $ | 0.04 | | | $ | 0.05 | | | $ | (0.04 | ) |
Shares used in per share calculation - basic | 91,578 | | | 89,577 | | | 91,103 | | | 89,277 | |
Shares used in per share calculation - diluted | 91,578 | | | 90,533 | | | 92,526 | | | 89,277 | |
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited) |
| | | | | | | |
| Nine Months Ended |
| March 27, 2011 | | March 28, 2010 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | 4,800 | | | $ | (3,185 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Decrease in accrued investment income | (2,280 | ) | | (612 | ) |
Depreciation and amortization | 4,972 | | | 4,304 | |
Change in value / loss on value of UBS option to put securities | 2,429 | | | 516 | |
Auction rate securities mark to market, trading gain | (2,429 | ) | | (516 | ) |
Provision for doubtful accounts | 30 | | | — | |
Excess and obsolete inventory | 3,354 | | | 1,373 | |
Deferred income taxes | (572 | ) | | 48 | |
Loss on retirement of assets | 421 | | | 78 | |
Stock-based compensation | 3,780 | | | 4,571 | |
Restructuring charge, net of reversal | — | | | 152 | |
Changes in operating assets and liabilities, net | | | |
Accounts receivable | 7,079 | | | 1,017 | |
Inventories | (340 | ) | | (12,626 | ) |
Prepaid expenses and other assets | (4,888 | ) | | (303 | ) |
Accounts payable | (4,598 | ) | | 6,082 | |
Accrued compensation and benefits | (1,320 | ) | | (554 | ) |
Restructuring liabilities | (2,053 | ) | | (2,825 | ) |
Accrued warranty | (662 | ) | | 157 | |
Deferred revenue, net | 1,409 | | | 136 | |
Deferred revenue, net of cost of sales to distributors | (2,839 | ) | | 4,644 | |
Other accrued liabilities | 7,277 | | | 21 | |
Other long-term liabilities | (2,131 | ) | | (158 | ) |
Net cash provided by operating activities | 11,439 | | | 2,320 | |
Cash flows used in investing activities: | | | |
Capital expenditures | (4,185 | ) | | (3,610 | ) |
Purchases of investments | (90,223 | ) | | (41,103 | ) |
Proceeds from maturities of investments and marketable securities | 22,100 | | | 22,551 | |
Proceeds from sales of investments and marketable securities | 57,490 | | | 12,762 | |
Net cash used in investing activities | (14,818 | ) | | (9,400 | ) |
Cash flows provided by financing activities: | | | |
Proceeds from issuance of common stock | 1,135 | | | 1,123 | |
Net cash provided by financing activities | 1,135 | | | 1,123 | |
| | | |
Foreign currency effect on cash | 679 | | | (51 | ) |
| | | |
Net decrease in cash and cash equivalents | (1,565 | ) | | (6,008 | ) |
Cash and cash equivalents at beginning of period | 51,944 | | | 49,233 | |
Cash and cash equivalents at end of period | $ | 50,379 | | | $ | 43,225 | |
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
(In thousands, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| March 27, 2011 | | March 28, 2010 | | March 27, 2011 | | March 28, 2010 |
NET INCOME (LOSS) | | | | | | | |
Net income (loss)- GAAP Basis | $ | (6,841 | ) | | $ | 3,676 | | | $ | 4,800 | | | $ | (3,185 | ) |
| | | | | | | |
Non-GAAP adjustments | | | | | | | |
Stock-based compensation expense | $ | 1,296 | | | $ | 1,408 | | | $ | 3,781 | | | $ | 4,575 | |
Litigation settlement | $ | (49 | ) | | $ | — | | | $ | (4,249 | ) | | $ | — | |
Restructuring charge, net of reversal | $ | 1,043 | | | $ | 371 | | | $ | 1,043 | | | $ | 4,004 | |
Total Non-GAAP adjustments | $ | 2,290 | | | $ | 1,779 | | | $ | 575 | | | $ | 8,579 | |
Net income (loss) - Non-GAAP Basis | $ | (4,551 | ) | | $ | 5,455 | | | $ | 5,375 | | | $ | 5,394 | |
| | | | | | | |
NON-GAAP ADJUSTMENTS | | | | | | | |
Cost of product revenue | $ | 85 | | | $ | 124 | | | $ | 318 | | | $ | 347 | |
Cost of service revenue | 75 | | | 140 | | | 224 | | | 361 | |
Sales and marketing | 446 | | | 413 | | | 1,407 | | | 1,392 | |
Research and development | 248 | | | 338 | | | 740 | | | 1,324 | |
General and administrative | 442 | | | 393 | | | 1,092 | | | 1,151 | |
Litigation settlement | (49 | ) | | — | | | (4,249 | ) | | — | |
Restructuring charge, net of reversal | 1,043 | | | 371 | | | 1,043 | | | 4,004 | |
Total non-GAAP adjustments | $ | 2,290 | | | $ | 1,779 | | | $ | 575 | | | $ | 8,579 | |