EXTREME NETWORKS, INC. SAN JOSE, Calif., Jan. 28, 2015 /PRNewswire/ -- Extreme Networks, Inc. (Nasdaq: EXTR) today released financial results for the second quarter of fiscal year 2015, ended December 31, 2014. GAAP revenue was $147.2 million and non-GAAP revenue was $148.0 million. GAAP net loss for the second fiscal quarter was $13.1 million, or $0.13 per share, and non-GAAP net income was $4.7 million, or $0.05 per diluted share. This is the fourth quarter that Extreme Networks is reporting full quarter results that include the Enterasys acquisition.
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"We made solid progress towards improving our results in the second fiscal quarter. Non-GAAP revenues were up 8% from the prior quarter at $148 million. Non-GAAP operating income was up over five-fold from the prior quarter reaching $6.7 million and EPS was $0.05 compared to a penny loss in Q1. At the same time we strengthened our balance sheet, reducing debt by $32 million while maintaining cash at $109 million, slightly above the prior quarter," said Chuck Berger, president and CEO of Extreme Networks. "We added several large new customers during the quarter including the Green Bay Packers, Baltimore Ravens, University of Maryland and Penn State University.
"We also continued to strengthen our sales leadership adding Stephen Patak and Bob Gault as heads of U.S. and Canada sales and worldwide channels respectively," Berger continued. "Together they bring more than 30 years of experience in the networking industry. In addition, David Hume joined as CIO and Frank Yoshino was appointed vice president, treasury and IR. Raj Khanna joined our Board of Directors in December. Raj brings extensive financial and internal audit experience over a 30 year career at Xerox, Sun and Qualcomm."
Key Accomplishments in Fiscal Q2 FY 2015:
-- Product innovation continued with the introduction of the Summit®
460-G2 fixed switch, the most powerful edge switch in our portfolio. We
also broadened our IdentiFi Wi-Fi product offering with the AP3805, a
full featured enterprise-class 802.11ac access point at an entry-level
price point.
-- Lenovo selected Extreme Networks to provide networking technology for
its high performance computing (HPC) solution.
-- Continued success with the NFL by adding the Baltimore Ravens and the
Green Bay Packers as new customers for our in stadium Wi-Fi solutions.
Extreme Networks was also named the first official Wi-Fi Solutions
Provider of the NFL.
-- We announced a co-marketing and sales agreement with IMG College, part
of WME-IMR, who owns the marketing and media rights to over 90 division
one universities. The University of Maryland selected our IdentiFi Wi-Fi
solution for its football and basketball venues, joining Baylor
University, an IMG partner university, who went live with Extreme in the
prior quarter.
-- Microsoft, Palo Alto Networks, VMWare, A19 Networks, NetOptics/IXIA and
Sanbolic joined the Extreme Technology Solutions Partner (TSP) program
joining more than 50 existing members, adding support to our open and
standards-based networking and SDN technology.
-- Key account wins:
-- Green Bay Packers
-- Baltimore Ravens
-- Penn State University
-- Hartford County Public Schools
-- Sejong City Office of Education
-- Caledonia Community Schools
-- Charite Campus Mitte
-- Riken Japan
Fiscal Q2 2015 Financial Metrics:
Second Quarter
(in millions, except per share amounts
and percentages)
(unaudited)
2015 2014 Change
---- ---- ------
GAAP Net
Revenue
Product $112.5 $119.1 $(6.6) (6)%
Service $34.7 $27.5 $7.2 26%
Total Net
Revenue $147.2 $146.6 $0.6 -%
Gross
Margin 51.1% 47.6% 3.5% 7%
Operating
Loss (7.5)% (9.4)% 1.9% (20)%
Net Loss $(13.1) $(16.0) $2.9 (18)%
Loss per
diluted
share $(0.13) $(0.17) $0.04 (24)%
Non-GAAP
Net
Revenue
Product $112.5 $119.1 $(6.6) (6)%
Service $35.5 $29.2 $6.3 22%
Total Net
Revenue $148.0 $148.3 $(0.3) -%
Gross
Margin 54.6% 56.4% (1.8)% (3)%
Operating
Margin 4.5% 11.0% (6.5)% (59)%
Net Income $4.7 $14.1 $(9.4) (67)%
Earnings
per
diluted
share $0.05 $0.14 $(0.09) (64)%
-- Cash and investments ended the quarter at $109.3 million, as compared to
$104.5 million from the prior quarter.
-- Accounts receivable balance ending Q2 was $93.5 million, with days sales
outstanding (DSO) of 57.
-- Inventory ending Q2 was $54.4 million, a decrease of $0.9 million from
the prior quarter, due to continued right-sizing of inventory.
Business Outlook:
For its third quarter of fiscal 2015 ending March 31, 2015, the Company is targeting GAAP revenue in a range of $129 million to $139 million with non-GAAP revenue in a range of $130 million to $140 million. GAAP gross margin is targeted between 51.0% and 52.0% and non-GAAP gross margin targeted between 55.0% and 56.0%. Operating expenses are targeted to be between $83 million and $84.6 million on a GAAP basis and $72.5 million to $74.5 million on a non-GAAP basis. GAAP net loss is targeted to be between $14 million to $19.5 million, or $0.14 to $0.20 per share. Non-GAAP earnings are targeted in a range of a net loss of $3.1 million to net income of $1.8 million, or a loss of $0.03 to net income of $0.02 per diluted share. The GAAP and non-GAAP net (loss) income targets are based on an estimated 99 million and 101 million, average outstanding shares respectively. Targeted non-GAAP earnings exclude expenses related to stock-based compensation expense, the amortization of acquired intangibles, acquisition and integration related expenses, restructuring expenses and the purchase accounting adjustment related to deferred service revenue.
Conference Call:
Extreme Networks will host a conference call at 5:00 p.m. Eastern (2:00 p.m. Pacific) today to review the second fiscal quarter results and third fiscal quarter business outlook, including significant factors and assumptions underlying the targets noted above. The conference call will be available to the public through a live audio web broadcast via the Internet at http://investor.extremenetworks.com and a replay of the call will be available on the website through January 27, 2016. The conference call may also be heard by dialing 1-877-303-9826 (international callers dial 1-224-357-2194). Supplemental 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 including the non-GAAP reconciliation attached to this press release. The encore recording can be accessed by dialing (855) 859-2056 /or international 1 (404) 537-3406; Conference ID #:63414269.
About Extreme Networks:
Extreme Networks, Inc. (NASDAQ: EXTR) is setting a new standard for superior customer experience by delivering network-powered innovation and marketing leading service and support. Extreme Networks delivers high-performance switching and routing products for data center and core-to-edge networks, wired/wireless LAN access, and unified network management and control. Our award-winning solutions include software-defined networking (SDN), cloud and high-density Wi-Fi, BYOD and enterprise mobility, identity access management and security. Extreme Networks is headquartered in San Jose, CA and has more than 12,000 customers in over 80 countries. For more information, visit http://www.extremenetworks.com.
Non-GAAP Financial Measures:
Extreme Networks provides all financial information required in accordance with generally accepted accounting principles (GAAP). The Company is providing with this press release non-GAAP revenue, non-GAAP gross margins, non-GAAP operating expenses, and non-GAAP income/(loss) per share. In preparing non-GAAP information, the Company has excluded, where applicable, the impact of acquisition and integration costs, purchase accounting adjustments, amortization of acquired intangibles, and share-based compensation. The Company believes that excluding these items provides both management and investors with additional insight into its 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 the Company's historical performance and in planning its future business activities. Please note that the Company's non-GAAP measures may be different than those used by other companies. The additional non-GAAP financial information the Company presents should be considered in conjunction with, and not as a substitute for, the Company's financial information presented in accordance with GAAP. The Company has provided a non-GAAP reconciliation of the results for the periods presented in this release, which are adjusted to exclude acquisition and integration costs, purchase accounting adjustments, amortization of intangibles, restructuring charges, net of reversals and share-based compensation expense. 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.
Forward Looking Statements:
Actual results, including with respect to the Company's financial targets and general business prospects, could differ materially due to a number of factors, including the risks that:
-- The Company may not achieve targeted revenues for the Company's products
and services given increasing price competition and product technology
developments in key network switching equipment markets;
-- Ongoing uncertainty in global economic conditions, infrastructure
development or customer demand could negatively affect product demand,
collectability of receivables and other related matters as consumers and
businesses may defer purchases or payments, or default on payments;
-- The Company may be unable to effectively integrate the businesses of
Extreme Networks and Enterasys Networks, both in terms of customer
acceptance of combined product lines as well as the need to align the
Company's cost structure to meet the company's financial goals,
including controlling expenses, and meeting financial covenants as part
of the Company's debt financing used to acquire Enterasys Networks;
-- The Company may not accurately anticipate demand from end customers,
which can result in increased inventory and reduced orders as it
experiences wide fluctuations in supply and demand;
-- The Company is dependent on third parties to manufacture its products
and any potential production delays could preclude the Company from
shipping sufficient quantities to meet customer orders or could result
in higher production costs and lower margins;
-- The Company may be unable to complete development and commercialization
of products under development, such as its pipeline of new network
switches and related software;
-- The Company may be adversely affected by ongoing litigation.
The matters set forth in this press release are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements speak only as of the date of this release. Because such statements deal with future events, they are subject to risks and uncertainties. Other important factors that could cause actual results to differ materially are contained in the Company's 10-Qs and 10-Ks that are on file with the Securities and Exchange Commission. http://www.sec.gov. 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. Except as required under the U.S. federal securities laws and the rules and regulations of the SEC, Extreme Networks disclaims any obligation to update any forward-looking statements after the date of this release, whether as a result of new information, future events, developments, changes in assumptions or otherwise.
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
December 31,
2014 June 30, 2014
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $88,972 $73,190
Short-term investments 20,321 32,692
Accounts receivable, net of
allowances of $6,138 at December
31, 2014 and $3,618 at June 30,
2014 93,519 124,664
Inventories 54,431 57,109
Deferred income taxes 911 1,058
Prepaid expenses and other current
assets 11,929 14,143
------ ------
Total current assets 270,083 302,856
Property and equipment, net 43,568 46,554
Intangible assets, net 69,880 87,459
Goodwill 70,877 70,877
Other assets 20,903 18,686
------ ------
Total assets $475,311 $526,432
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $8,125 $29,688
Accounts payable 45,503 37,308
Accrued compensation and benefits 22,476 26,677
Restructuring liabilities 75 322
Accrued warranty 7,845 7,551
Deferred revenue, net 74,353 74,735
Deferred distributors revenue, net
of cost of sales to distributors 31,172 31,992
Other accrued liabilities 36,030 38,035
------ ------
Total current liabilities 225,579 246,308
Deferred revenue, less current
portion 23,940 22,942
Long-term debt, less current portion 81,000 91,875
Other long-term liabilities 10,676 8,595
Commitments and contingencies
Stockholders' equity 134,116 156,712
------- -------
Total liabilities and stockholders'
equity $475,311 $526,432
======== ========
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
----------------- ----------------- ----------------- -----------------
Net revenues:
Product $112,501 $119,065 $215,173 $180,109
Service 34,707 27,518 68,309 42,389
------ ------ ------ ------
Total net revenues 147,208 146,583 283,482 222,498
------- ------- ------- -------
Cost of revenues:
Product 60,496 66,893 114,521 94,409
Service 11,550 9,845 23,272 14,538
------ ----- ------ ------
Total cost of revenues 72,046 76,738 137,793 108,947
------ ------ ------- -------
Gross profit:
Product 52,005 52,172 100,652 85,700
Service 23,157 17,673 45,037 27,851
------ ------ ------ ------
Total gross profit 75,162 69,845 145,689 113,551
------ ------ ------- -------
Operating expenses:
Research and development 24,000 18,896 47,347 28,832
Sales and marketing 43,971 40,636 88,750 63,330
General and administrative 10,306 11,189 21,380 18,125
Acquisition and integration
costs 3,500 8,688 7,558 12,382
Restructuring charge, net of
reversals - 430 - 505
Amortization of intangibles 4,467 3,778 8,934 3,778
----- -----
Total operating expenses 86,244 83,617 173,969 126,952
------ ------ ------- -------
Operating loss (11,082) (13,772) (28,280) (13,401)
Interest income 196 172 342 447
Interest expense (825) (524) (1,661) (524)
Other expense, net (64) (937) (498) (1,192)
--- ---- ---- ------
Loss before income taxes (11,775) (15,061) (30,097) (14,670)
Provision for income taxes 1,330 925 2,338 1,352
----- --- ----- -----
Net loss $(13,105) $(15,986) $(32,435) $(16,022)
======== ======== ======== ========
Basic and diluted net loss per share:
Net loss per share - basic $(0.13) $(0.17) $(0.33) $(0.17)
Net loss per share - diluted $(0.13) $(0.17) $(0.33) $(0.17)
Shares used in per share
calculation -basic 98,677 95,216 97,996 94,639
Shares used in per share
calculation -diluted 98,677 95,216 97,996 94,639
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
----------------
December 31, December 31,
2014 2013
------------- -------------
Net cash
provided
by (used
in)
operating
activities $41,453 $(4,869)
------- -------
Cash flows from
investing activities:
Capital
expenditures (3,962) (12,562)
Acquisition,
net of
cash
acquired - (180,000)
Purchases
of
investments - (9,045)
Proceeds
from
maturities
of
investments
and
marketable
securities 3,000 20,062
Proceeds
from
sales of
investments
and
marketable
securities 9,051 54,578
Purchases
of
intangible
assets (419) -
---- ---
Net cash
provided
by (used
in)
investing
activities 7,670 (126,967)
----- --------
Cash flows from
financing activities:
Borrowings
under
Revolving
Facility 24,000 35,000
Issuance
of Term
Loan - 65,000
Repayment
of debt (56,438) (813)
Proceeds
from
issuance
of
common
stock 1,722 4,803
Net cash
(used
in)
provided
by
financing
activities (30,716) 103,990
------- -------
Foreign
currency
effect
on cash (2,625) 347
------ ---
Net
increase
(decrease)
in cash
and cash
equivalents 15,782 (27,499)
Cash and
cash
equivalents
at
beginning
of
period 73,190 95,803
------ ------
Cash and
cash
equivalents
at end
of
period $88,972 $68,304
======= =======
Extreme Networks, Inc.
Non-GAAP Measures of Financial Performance
To supplement the Company's consolidated financial statements presented in accordance with generally accepted accounting principles, or GAAP, Extreme Networks uses non-GAAP measure of certain components of financial performance. These non-GAAP measures include non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP gross margin, non-GAAP operating expenses and free cash flow.
Reconciliation to the nearest GAAP measure of all historical non-GAAP measures included in this press release can be found in the tables included with this press release. In this press release, Extreme Networks also presents its target for non-GAAP expenses, which is expenses less stock based compensation expense, acquisition and integration costs, purchase accounting adjustments, amortization of intangibles and restructuring expenses
Non-GAAP measures presented in this press release are not in accordance with or alternative measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition these, non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Extreme Networks' results of operations as determined in accordance with GAAP. These non-GAAP measures should only be used to evaluate Extreme Networks' results of operations in conjunction with the corresponding GAAP measures.
Extreme Networks believes that these non-GAAP measures when shown in conjunction with the corresponding GAAP measures enhance investors' and management's overall understanding of the Company's current financial performance and the Company's prospects for the future, including cash flows available to pursue opportunities to enhance shareholder value. In addition, because Extreme Networks has historically reported certain non-GAAP results to investors, the Company believes that the inclusion of non-GAAP measures provides consistency in the Company's financial reporting.
For its internal planning process, and as discussed further below, Extreme Network's management uses financial statements that do not include stock-based compensation expense, acquisition and integration costs, purchase accounting adjustments, amortization of intangibles, and restructuring expenses. Extreme Networks' management also uses non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the Company's financial results.
As described above, Extreme Networks excludes the following items from one or more of its non-GAAP measures when applicable.
Stock based compensation expense. This expense consists of expenses for stock options, restricted stock and employee stock purchases through its ESPP. Extreme Networks excludes stock based compensation expenses from its non-GAAP measures primarily because they are non-cash expenses that the Company does not believe are reflective of ongoing cash requirement related to operating results. Extreme Networks expects to incur stock-based compensation expenses in future periods.
Acquisition and integration costs. Acquisition and integration costs primarily consist of legal and professional fees, severance costs, and other expenses related to the acquisition and integration of Enterasys Inc. Extreme Networks excludes these expenses since they result from an event that is outside the ordinary course of continuing operations.
Amortization of intangibles. Amortization of intangibles includes the monthly amortization expense of acquired intangible assets such as developed technology, customer relationships, trademarks and order backlog. The amortization of the developed technology intangible is recorded in product cost of goods sold, while the amortization for the other intangibles are recorded in operating expenses. Extreme Networks excludes these non-cash expenses since they result from an intangible asset and for which the period expense does not impact the operations of the business.
Purchase accounting adjustments relating to deferred revenue. Purchase accounting adjustments consists of adjustments to the carrying value of deferred revenue. We have recorded adjustments to the assumed deferred revenue to reflect only a fulfillment margin and thereby excluding the profit margin and revenue which would have been incurred had Extreme Networks entered into the service contract post-acquisition.
Purchase accounting adjustments relating to inventory. Purchase accounting adjustments relating to inventory consists of the amortization of the step up value from the valuation of the inventory at fair value in cost of revenues as part of business combination accounting. Extreme Networks excludes these expenses since they result from an event that is out the ordinary course of continuing operations.
Restructuring expenses. Restructuring expenses primarily consist of cash severance and termination benefits. Extreme Networks excludes restructuring expenses since they result from events that often occur outside of the ordinary course of continuing operations. Extreme Networks expects to incur restructuring expenses in future periods.
In addition to the non-GAAP measures discussed above, Extreme Networks also uses free cash flow as a measure of operating performance. Free cash flow represents operating cash flows less net purchase of property and equipment. Extreme Networks considers free cash flows to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of property and equipment, which can then be used to, among other things, invest in Extreme Networks business, make strategic acquisitions, strengthen the balance sheet and repurchase stock. A limitation of the utility of free cash slows as a measure of financial performance is that it does not represent the total increases or decrease in the Company's cash balance for the period.
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
(In thousands, except per share amounts)
(Unaudited)
Non-GAAP Revenue Three Months Ended Six Months Ended
------------------ ----------------
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
----------------- ----------------- ----------------- -----------------
Revenue - GAAP Basis $147,208 $146,583 $283,482 $222,498
Adjustments:
Purchase accounting adjustments $766 $1,764 $1,533 $1,764
---- ------
Revenue - Non-GAAP Basis $147,974 $148,347 $285,015 $224,262
Non-GAAP Gross Margin Three Months Ended Six Months Ended
------------------ ----------------
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
----------------- ----------------- ----------------- -----------------
Gross profit - GAAP Basis $75,162 $69,845 $145,689 $113,551
Gross margin -GAAP Basis
percentage 51.1% 47.6% 51.4% 51.0%
Adjustments:
Stock based compensation expense $547 $198 $1,121 $502
Purchase accounting adjustments $766 $11,000 $1,533 $11,000
Amortization of intangibles $4,292 $2,694 $8,583 $2,694
------ ------ ------ ------
Gross profit - Non-GAAP Basis $80,767 $83,737 $156,926 $127,747
Gross margin - Non-GAAP Basis
percentage 54.6% 56.4% 55.1% 57.0%
Non-GAAP Operating Income Three Months Ended Six Months Ended
------------------ ----------------
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
----------------- ----------------- ----------------- -----------------
GAAP operating loss $(11,082) $(13,772) $(28,280) $(13,401)
GAAP operating loss income
percentage (7.5)% (9.4)% (10.0)% (6.0)%
Adjustments:
Stock based compensation expense $4,750 $3,458 $9,563 $5,033
Acquisition and integration costs $3,500 $8,688 $7,558 $12,382
Restructuring charge, net of
reversal $ - $430 $ - $505
Amortization of intangibles $8,759 $6,472 $17,517 $6,472
Purchase accounting adjustments $766 $11,000 $1,533 $11,000
----
Total adjustments to GAAP
operating income $17,775 $30,048 $36,171 $35,392
Non-GAAP operating income $6,693 $16,276 $7,891 $21,991
Non-GAAP operating income
percentage 4.5% 11.0% 2.8% 9.8%
Non-GAAP Net Income Three Months Ended Six Months Ended
------------------ ----------------
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
----------------- ----------------- ----------------- -----------------
GAAP net loss $(13,105) $(15,986) $(32,435) $(16,022)
Adjustments:
Stock based compensation expense $4,750 $3,458 $9,563 $5,033
Acquisition and integration costs $3,500 $8,688 $7,558 $12,382
Restructuring charge, net of
reversal $ - $430 $ - $505
Amortization of intangibles $8,759 $6,472 $17,517 $6,472
Purchase accounting adjustments $766 $11,000 $1,533 $11,000
----
Total adjustments to GAAP net
income $17,775 $30,048 $36,171 $35,392
Non-GAAP net income $4,670 $14,062 $3,736 $19,370
Earnings per share
Non-GAAP diluted net income per
share $0.05 $0.14 $0.04 $0.20
Shares used in diluted net income
per share calculation 100,788 98,352 100,606 97,023
Free Cash Flow Three Months Ended Six Months Ended
------------------ ----------------
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
----------------- ----------------- ----------------- -----------------
Cash flow provided by operations $39,822 $(6,794) $41,453 $(4,869)
Add: PP&E CapEx spending $(1,178) $(2,754) $(3,962) $(12,562)
------- ------- ------- --------
Total free cash flow $38,644 $(9,548) $37,491 $(17,431)
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SOURCE Extreme Networks, Inc.
