EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

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 FOURTH QUARTER RESULTS

SANTA CLARA, Calif., August 2, 2006 – Extreme Networks, Inc. (Nasdaq: EXTR), the leader in open converged networks, today announced financial results for its fiscal fourth quarter and year ended July 2, 2006.

For the quarter, net revenue was $82.4 million, compared to $96.1 million in the fourth quarter of fiscal 2005. Net loss for the quarter was $1.8 million or a loss of $0.02 per diluted share on a GAAP basis. Excluding stock-based compensation expense of $2.2 million, non-GAAP net income for the quarter was $0.4 million or $0.00 per diluted share, compared to non-GAAP net income of $0.3 million or $0.00 per diluted share in the fourth fiscal quarter of 2005.

For the fiscal year, the Company recorded net revenue of $358.6 million, down from $383.3 million in fiscal 2005. Net income for fiscal 2006 was $11.0 million. Excluding stock-based compensation expense of $7.0 million, non-GAAP net income for the fiscal year was $18.0 million, or $0.15 per share, up from $13.3 million or $0.11 per fully diluted share in fiscal 2005.

“We are pleased with the year-over-year improvement in our non-GAAP profitability,” said Gordon L. Stitt, CEO of Extreme Networks. “Our goal in the coming year is to expand our sales force in order to take greater advantage of the revenue opportunities made possible by our improving ExtremeXOS-based product line.”

Revenues in the U.S. were $35.0 million in the quarter, representing 42.4 percent of total consolidated revenue, compared to $43.1 million or 44.9 percent of revenue in the same quarter a year ago. International revenues were $47.4 million or 57.6% percent of total revenues, compared to $53.0 million or 55.2 percent of total revenues in the fourth quarter of last fiscal year.

For the fiscal year, international net revenues totaled $212.7 million, down 1.7 percent from fiscal 2005. Net revenues in the US were $145.9 million, down 12.7 percent from the previous fiscal year.

Gross margin on a GAAP basis for the fourth quarter was 52.7 percent. Excluding expense for stock-based compensation of $0.3 million, gross margin was 53.1 percent, compared to 53.0 percent in the fourth quarter of fiscal 2005, the tenth consecutive quarter of year-over-year gross margin increases. Operating expenses for the quarter, on a GAAP basis, were $47.4 million. Excluding stock-based compensation of $1.9 million, operating expenses were $45.5 million or 55.2% of sales.

Cash provided by operating activities during the quarter was $1.4 million. For the fiscal year, cash provided by operations was $28.0 million. During the quarter, the Company continued to execute on its $50 million share repurchase program by repurchasing 2.9 million shares for $13.1 million, leaving cash, cash equivalents and investments at the end of the fourth quarter of $433.1 million. Since announcing the program in October 2005, the Company has repurchased a total of 7.1 million shares for $33.7 million dollars.

Quarterly Business Highlights

 

•   Extreme Networks assists Avaya to Deliver Highly Successful World Cup Event Network: Extreme Networks provided converged switching solutions and advanced network monitoring and performance management to support the converged communication network that Avaya supplied for the 2006 FIFA World Cup Germany™. The resulting wired and wireless IP network provided 99.999 percent availability throughout the event connecting thousands of staff, journalists, and participating teams with critical data, reliable VoIP phone calls and multimedia content

 

•   Extreme Networks named Top 100 IT vendor: Having completed shipment of 15 million Ethernet ports to its customers worldwide, IT Week Magazine hailed Extreme Networks as one of its Top 100 IT vendors based on the Company’s innovative technologies and an impressive history providing converged network solutions to global customers.

•   Extreme Networks Wins InfoWorld Magazine’s Converged Network Review: In a ‘hands-on’ test of 10 Gigabit Ethernet switches conducted by InfoWorld Magazine, Extreme Networks’ BlackDiamond 10K and 8800 switches received the highest score of participating vendors for a complete enterprise convergence solution, where performance and scalability, integrated management, network security and ease-of-set-up were evaluated.

 

•   German Telecom Service Provider Deploys Extreme Networks’ Multidimensional Ethernet: wilhelm.tel has deployed Extreme Networks’ BlackDiamond 12K switch to serve thousands of residential customers in Hamburg and surrounding cities with high performance Ethernet that powers triple-play applications consisting of voice, cable video and data.

 

•   Extreme Networks Adds New Distribution Partner: Anixter of Mexico is now distributing Extreme’s BlackDiamond, Alpine® and Summit® switching family of products addressing healthcare, government and education customers in Mexico.

Conference Call

Extreme Networks will host a conference call to discuss these results today at 5:00 p.m. EDT (2:00 p.m. PDT), for more information visit http://www.extremenetworks.com/aboutus/investor/ Financial information to be discussed during the conference call is posted on the Investor Relations section of the Company’s website (www.extremenetworks.com).

Extreme Networks

Extreme Networks is the leader in open converged networks. Its innovative network architecture provides Enterprises and Metro Service Providers with the resiliency, adaptability and simplicity required for a true converged network that supports voice, video and data, over a wired and wireless infrastructure, while delivering high-performance and advanced security features. For more information, please visit http://www.extremenetworks.com.

Non-GAAP Financial Measures

Extreme Networks provides all financial information required in accordance with generally accepted accounting principles (GAAP). In the first fiscal quarter of 2006, the Company adopted Financial Accounting Standards Board Statement No. 123(R), which requires companies to

recognize the compensation cost associated with share-based payments in their financial statements. As a result, the financial statements for the three months and year ended July 2, 2006 include the new stock-based compensation expense of $2.2 million and $7.0 million, respectively; however, comparable prior year periods are not required to be restated. Therefore, to supplement Extreme Networks’ consolidated financial statements presented in accordance with GAAP, the Company has provided non-GAAP financial information, which is adjusted to exclude all stock-based compensation expense. This non-GAAP reporting provides for comparable financial information and can enhance the understanding of the Company’s ongoing performance as a business. Therefore, Extreme Networks uses both GAAP and non-GAAP reporting to evaluate and manage its operations. A reconciliation of GAAP to non-GAAP financial measures is included in the accompanying attachments.

# # #

Extreme Networks is a registered trademark of Extreme Networks, Inc., in the United States and other countries. All other marks are the property of their respective holders.

This announcement contains preliminary, unaudited financial data which could differ from actual financial data to be filed with the Securities and Exchange Commission in our Annual Report on Form 10-K. This announcement may contain forward-looking statements that involve risks and uncertainties. More information about potential factors that could affect our business and financial results is included in our 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 is on file with the Securities and Exchange Commission (http://www.sec.gov).

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per-share amounts)

(Unaudited)

 

     Three Months Ended     Year Ended
    

July 2,

2006

    

July 3,

2005

    

July 2,

2006

   

July 3,

2005

Net revenues:

          

Product

    $ 66,761     $ 80,486     $ 294,824    $ 324,256

Service

      15,681       15,566       63,777      59,091
                             

Total net revenues

      82,442       96,052       358,601      383,347
                             

Cost of revenues:

          

Product (1)

      30,809       36,525       130,684      146,476

Service (1)

      8,178       8,650       34,180      34,219
                             

Total cost of revenues

      38,987       45,175       164,864      180,695
                             

Gross margin:

          

Product

      35,952       43,961       164,140      177,780

Service

      7,503       6,916       29,597      24,872
                             

Total gross margin

      43,455       50,877       193,737      202,652
                             

Operating expenses:

          

Sales and marketing (1)

      25,513       25,862       98,539      96,804

Research and development (1)

      15,734       15,682       62,123      61,268

General and administrative (1)

      6,136       9,838       25,868      31,754

Amortization of deferred stock compensation (1)

      —         —         —        69

Technology agreement

      —         —         —        2,000
                             

Total operating expenses

      47,383       51,382       186,530      191,895
                             

Operating income (loss)

      (3,928 )     (505 )     7,207      10,757

Other income, net

      1,876       1,145       5,615      5,728
                             

Income (loss) before income taxes

      (2,052 )     640       12,822      16,485

Provision for (benefit from) income taxes

      (232 )     517       1,798      3,543
                             

Net income (loss)

    $ (1,820 )   $ 123     $ 11,024    $ 12,942
                             

Net income (loss) per share - basic

    $ (0.02 )   $ *     $ 0.09    $ 0.11
                             

Net income (loss) per share - diluted

    $ (0.02 )   $ *     $ 0.09    $ 0.10
                             

Shares used in per share calculation - basic

      118,453       121,779       121,286      121,225
                             

Shares used in per share calculation - diluted

      118,453       124,298       123,049      124,219
                             

________________

          

(1)      Includes stock-based compensation expense as follows:

          

Cost of product revenue

    $ 205     $ 32     $ 718    $ 32

Cost of service revenue

      140       —         417      —  

Sales and marketing

      888       9       2,764      48

Research and development

      663       92       1,993      190

General and administrative

      340       —         1,103      —  

Amortization of deferred stock compensation

      —         —         —        69
                             

Total stock-based compensation expense

    $ 2,236     $ 133     $ 6,995    $ 339
                             
* Less than $0.01 per share

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

    

July 2,

2006

   

July 3,

2005

Assets      

Current assets:

      

Cash and cash equivalents

    $ 92,598    $ 127,470

Short-term investments

      297,726      127,889

Accounts receivable, net

      27,681      30,778

Inventories, net

      19,303      25,943

Prepaid expenses and other current assets

      9,420      12,410
             

Total current assets

      446,728      324,490

Property and equipment, net

      46,499      50,438

Marketable securities

      42,781      185,045

Other assets

      22,710      23,641
             

Total assets

    $ 558,718    $ 583,614
             
Liabilities and stockholders’ equity      

Current liabilities:

      

Accounts payable

    $ 20,138    $ 18,283

Deferred revenue

      35,406      36,688

Accrued warranty

      7,027      7,471

Convertible subordinated notes

      200,000      —  

Other accrued liabilities

      37,624      42,462
             

Total current liabilities

      300,195      104,904

Other long-term liabilities

      10,128      16,913

Deferred revenue, less current portion

      9,699      13,785

Convertible subordinated notes

      —        200,000

Total stockholders’ equity

      238,696      248,012
             

Total liabilities and stockholders’ equity

    $ 558,718    $ 583,614
             

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Year Ended  
    

July 2,

2006

    

July 3,

2005

  

Cash flows from operating activities:

     

Net income

    $ 11,024     $ 12,942  

Adjustments to reconcile net income to net cash provided by operating activities:

     

Depreciation and amortization

      11,908       16,244  

Provision for doubtful accounts

      1,166       380  

Provision for excess and obsolete inventory

      1,259       1,061  

Deferred income taxes

      (249 )     451  

Amortization of warrant

      4,691       7,566  

Amortization of deferred stock compensation

      —         69  

Stock-based compensation

      6,995       —    

Loss on disposal of assets

      —         212  

Net changes in operating assets and liabilities:

     

Accounts receivable

      3,306       2,271  

Inventories

      5,405       (1,114 )

Prepaid expenses and other current and noncurrent assets

      (2,075 )     (9,558 )

Accounts payable

      1,855       (712 )

Deferred revenue

      (5,326 )     (3,201 )

Accrued warranty

      (444 )     (825 )

Other accrued liabilities

      (11,478 )     (9,328 )
                

Net cash provided by operating activities

      28,037       16,458  
                

Cash flows from investing activities:

     

Capital expenditures

      (7,969 )     (7,127 )

Purchases and maturities of investments, net

      (26,260 )     53,033  
                

Net cash provided by (used in) investing activities

      (34,229 )     45,906  
                

Cash flows from financing activities:

     

Proceeds from issuance of common stock

      5,020       5,942  

Repurchase of common stock

      (33,700 )     —    
                

Net cash provided by (used in) financing activities

      (28,680 )     5,942  
                

Net increase (decrease) in cash and cash equivalents

      (34,872 )     68,306  

Cash and cash equivalents at beginning of period

      127,470       59,164  
                

Cash and cash equivalents at end of period

    $ 92,598     $ 127,470  
                

EXTREME NETWORKS, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In thousands, except per-share amounts)

(Unaudited)

 

     Three Months Ended   Year Ended
    

July 2,

2006

    

July 3,

2005

  

July 2,

2006

   

July 3,

2005

GAAP net income (loss)

    $ (1,820 )   $ 123   $ 11,024    $ 12,942

Adjustments:

          

Stock-based compensation

      2,236       133     6,995      339

Income tax effect

      —         —       —        —  
                           

Total non-GAAP adjustments

      2,236       133     6,995      339
                           

Non-GAAP net income (loss)

    $ 416     $ 256   $ 18,019    $ 13,281
                           

Non-GAAP net income (loss) per share — basic

    $ *     $ *   $ 0.15    $ 0.11
                           

Non-GAAP net income (loss) per share — diluted

    $ *     $ *   $ 0.15    $ 0.11
                           

Shares used in per share calculation — basic

      118,453       121,779     121,286      121,225
                           

Shares used in per share calculation — diluted

      120,189       124,298     123,049      124,219
                           
* Less than $0.01 per share