EXTREME NETWORKS : Hits Revenue Target: Beats EPS

SANTA CLARA, Calif., April 26 /PRNewswire-FirstCall/ -- Extreme Networks, Inc. (Nasdaq: EXTR) today announced financial results for its 2010 fiscal third quarter ended March 28, 2010. For the quarter, net revenue was $78.2 million, which was in line with Company guidance, and compares to revenue of $79.4 million in the previous quarter and $77.2 million in the third quarter of last year.

"Third quarter revenue reflected solid performance in North America, where product revenue increased 30% from the second quarter, reversing a historic pattern of sequential revenue declines as we executed to our target for the quarter," said Bob L. Corey, CFO and acting President & CEO of Extreme Networks. "We also posted positive net income and grew revenue-per-employee to the highest level since the fourth quarter of fiscal 2008.

"In addition, during the quarter we announced and began shipping the Summit X480 family of products for the data center, an additional set of modules for the BlackDiamond 8900 family, and a new release of the ExtremeXOS modular operating system. Also, our Direct Attach data center network solution and architecture was recently selected as a finalist for Best of Interop Awards, occurring at Interop in Las Vegas 2010. With our expanded portfolio of products, we expect to grow product revenue by an additional 8%-11% sequentially in our fourth quarter."

Third quarter non-GAAP operating income was $4.7 million or 6.0 percent of net revenue, compared to $4.3 million or 5.4 percent of net revenue in the previous quarter, and $500,000 or 0.6 percent of net revenue in the third quarter of last year. Additionally, non-GAAP net income was $5.5 million or $0.06 per diluted share, compared to $4.8 million or $0.05 per diluted share in the previous quarter, and $1.2 million or $0.01 per diluted share in the third quarter of last year. Non-GAAP financial results exclude the impact of stock-based compensation and restructuring charges. A reconciliation of GAAP to non-GAAP financial measures is included in the accompanying financial tables.

Operating income on a GAAP basis for the third quarter was $2.9 million, compared to an operating loss of $1.9 million in the previous quarter and an operating loss of $2.9 million for the third quarter of last year. Net income on a GAAP basis for the third quarter was $3.7 million or $0.04 per diluted share, which included a restructuring charge of $0.4 million and a charge of approximately $1.4 million related to stock based compensation. That compares to a net loss of $1.4 million or $0.02 per diluted share in the previous quarter, and a net loss of $2.2 million or $0.02 per diluted share in the third quarter of last year.

For the third quarter, net revenue in North America was $32.6 million, revenue in EMEA was $31.0 million, and revenue in APAC was $14.6 million. That compares to revenue of $27.5 million in North America, $37.8 million in EMEA, and $14.1 million in APAC in the previous quarter.

2010 Fiscal Fourth Quarter non-GAAP Financial Guidance

For its 2010 fiscal fourth quarter ending June 27, 2010, the Company currently expects net revenue to be in a range of $82-$85 million; gross margin of 57%-59%; non-GAAP operating income of $5.0-$7.0 million; and non-GAAP net income of $0.05-$0.07 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 48-hour replay will be available following the call by dialing 1-800-642-1687 (international callers dial 1-706-645-9291); the replay passcode is 67170982. In addition, a live webcast and replay of the call will be available at http://investor.extremenetworks.com. PLEASE NOTE: throughout the conference call, the Company will refer to a slide presentation that will be posted in the Investor Relations section of the Company's website at http://investor.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 and share-based compensation. We believe that excluding these charges 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 charges 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 and share-based compensation expense 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 provides converged Ethernet network infrastructure that support data, voice and video for enterprises and service providers. The company's network solutions feature high performance, high availability and scalable switching solutions that enable organizations to address real-world communications challenges and opportunities. Operating in more than 50 countries, Extreme Networks provides wired and wireless secure LANs, data center infrastructure and Service Provider Ethernet transport solutions that are complemented by global, 24x7 service and support. For more information, visit: http://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 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 28, June 28,
2010 2009
---- ----
(unaudited) (1)

ASSETS
Current assets:
Cash and cash equivalents $40,362 $46,195
Short-term investments 63,197 8,976
Accounts receivable, net 36,598 37,616
Inventories, net 23,638 12,380
Deferred income taxes 347 244
Prepaid expenses and other current assets,
net 3,072 4,368
----- -----
Total current assets 167,214 109,779
Property and equipment, net 43,457 44,229
Marketable securities 24,358 72,231
Other assets, net 15,333 13,736
------ ------
Total assets $250,362 $239,975
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $18,853 $12,771
Accrued compensation and benefits 11,941 12,320
Restructuring liabilities 3,242 3,559
Accrued warranty 3,326 3,170
Deferred revenue, net 30,697 30,058
Deferred revenue, net of cost of sales to
distributors 14,465 9,821
Other accrued liabilities 14,228 14,666
------ ------
Total current liabilities 96,752 86,365

Restructuring liabilities, less current
portion 1,035 3,519
Deferred revenue, less current portion 6,922 7,425
Deferred income taxes 713 564
Other long-term liabilities 435 592

Commitments and contingencies -

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; 129,328,008 issued at
March 28, 2010 (128,425,140 June 28,
2009) and capital in excess of par value 129 128
Treasury stock, 39,625,305 shares at March
28, 2010 and June 28, 2009 (149,666) (149,666)
Additional paid-in-capital 954,937 949,113
Accumulated other comprehensive income 1,677 1,323
Accumulated deficit (662,572) (659,388)
--------
Total stockholders' equity 144,505 141,510
------- -------
Total liabilities and stockholders' equity $250,362 $239,975
======== ========




(1) The information in this column is derived from the Company's
consolidated balance sheet included in the Company's Annual Report
on Form 10-K for the year ended June 28, 2009.

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)


Three Months Ended Nine Months Ended
------------------ -----------------
March
March 28, 29, March 28, March 29,
2010 2009 2010 2009
---- ---- ---- ----
Net revenues:
Product $63,197 $62,017 $178,425 $208,946
Service 15,000 15,185 45,478 45,330
------ ------ ------ ------
Total net revenues 78,197 77,202 223,903 254,276
------ ------ ------- -------

Cost of revenues:
Product 26,689 26,142 77,606 87,686
Service 6,169 6,642 18,417 22,049
----- ----- ------ ------
Total cost of
revenues 32,858 32,784 96,023 109,735
------ ------ ------ -------

Gross profit:
Product 36,508 35,875 100,819 121,260
Service 8,831 8,543 27,061 23,281
----- ----- ------ ------
Total gross profit 45,339 44,418 127,880 144,541
------ ------ ------- -------

Operating expenses:
Sales and marketing 24,634 24,293 70,789 75,926
Research and
development 11,277 13,928 37,309 44,457
General and
administrative 6,135 6,967 19,890 22,818
Restructuring, net 371 2,092 4,004 2,092
Total operating
expenses 42,417 47,280 131,992 145,293
------ ------ ------- -------

Operating income
(loss) 2,922 (2,862) (4,112) (752)
Interest income 408 672 1,118 2,965
Interest expense (29) (23) (98) (92)
Other income /
(expense), net 160 411 (135) 1,727
--- --- ---- -----
Income (loss) before
income taxes 3,461 (1,802) (3,227) 3,848
Provision for income
taxes (215) 371 (42) 1,917


Net Income (Loss) $3,676 $(2,173) $(3,185) $1,931
====== ======= ======= ======

Basic and diluted net
income per share:
Net income (loss) per
share -basic 0.04 (0.02) (0.04) 0.02
Net income (loss) per
share -diluted 0.04 (0.02) (0.04) 0.02
Shares used in per
share calculation -
basic 89,448 88,553 89,117 96,066
Shares used in per
share calculation -
diluted 89,696 88,553 89,117 96,139

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)


Nine Months Ended
-----------------
March 28, March 29,
2010 2009
---- ----

Cash flows provided by (used in)
operating activities:
Net (loss) income $(3,185) $1,931
Adjustments to reconcile net (loss)
income to net cash
provided by operating activities:
Depreciation and amortization 4,304 4,200
Loss /(gain) on value of option to
put securities 516 (4,616)
Mark to market, trading (gain) /
loss on trading securities (516) 4,616
Provision for doubtful accounts - 232
Provision for excess and obsolete
inventory 1,373 838
Deferred income taxes 48 124
Loss on retirement of assets 78 94
Stock-based compensation 4,571 2,630
Restructuring, net 4,004 2,092
Changes in operating assets and
liabilities, net
Accounts receivable 1,017 17,304
Inventories (12,626) (9,651)
Prepaid expenses and other assets (303) (83)
Accounts payable 6,082 (1,506)
Accrued compensation and benefits (378) (7,323)
Restructuring liabilities (6,677) (2,693)
Accrued warranty 157 (1,630)
Deferred revenue, net 136 (515)
Deferred revenue, net of cost of
sales to distributors 4,644 (1,693)
Other accrued liabilities (189) (8,350)
------
Net cash provided by (used in)
operating activities 3,056 (3,999)
----- ------

Cash flows (used in) provided by
investing activities:
Capital expenditures (3,610) (4,150)
Purchases of investments (41,103) (33,645)
Proceeds from maturities of
investments and marketable
securities 22,551 28,164
Proceeds from sales of investments
and marketable securities 12,150 81,354
Net cash (used in) provided by
investing activities (10,012) 71,723
------- ------

Cash flows provided by (used in)
financing activities:
Proceeds from issuance of common
stock 1,123 1,864
Repurchase of common stock,
including expenses - (101,363)
--------
Net cash provided by (used in)
financing activities 1,123 (99,499)
----- -------
Net decrease in cash and cash
equivalents (5,833) (31,775)
------ =======
Cash and cash equivalents at
beginning of period 46,195 70,370
Cash and cash equivalents at end of
period $40,362 $38,595
======= =======

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 March
March 28, 29, March 28, 29,
2010 2009 2010 2009
---- ---- ---- ----

Net income (loss) -GAAP
Basis $3,676 $(2,173) $(3,185) $1,931
====== ======= ======= ======

Non-GAAP adjustments
Stock-based compensation
expense $1,408 $1,237 $4,575 $2,627
Restructuring, net $371 2,092 $4,004 $2,092
---- ----- ------ ------
$1,779 $3,329 $8,579 $4,719
------ ------ ------ ------

Net income - Non-GAAP
Basis $5,455 $1,156 $5,394 $6,650
====== ====== ====== ======

Non-GAAP adjustments
Cost of product revenue $124 $96 $347 $105
Cost of service revenue 140 79 361 173
Sales and marketing 413 420 1,392 923
Research and development 338 387 1,324 848
General and administrative 393 255 1,151 578
Restructuring, net 371 2,092 4,004 2,092
Total non-GAAP adjustments $1,779 $3,329 $8,579 $4,719
====== ====== ====== ======

SOURCE Extreme Networks, Inc.