EXTREME NETWORKS, INC. SAN JOSE, Calif., Jan. 28, 2016 /PRNewswire/ -- Extreme Networks, Inc. (Nasdaq: EXTR) today released financial results for its fiscal second quarter ended December 31, 2015. Second quarter GAAP revenue was $139.3 million and non-GAAP revenue was $139.7 million. GAAP net loss for the second fiscal quarter was $7.2 million, or $0.07 per basic share, and non-GAAP net income was $9.0 million, or $0.09 per diluted share.
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"We delivered another quarter of strong results across all geographies reflecting the continued success of our go-to-market strategy," stated Ed Meyercord, President and CEO of Extreme Networks. "Revenue growth in the US was driven by strength in education with the expected rebound in E-Rate business, while EMEA generated strong results with government and manufacturing customers," said Meyercord. "In addition, our continued focus on controlling costs has delivered significant operating and net income expansion year over year."
"Now that we've laid the groundwork over the past two quarters," Meyercord continued, "we are concentrating our efforts on new product introductions and executing our solutions-based selling initiatives in our target vertical markets. With better visibility into our pipeline and strong business momentum, we are projecting year over year growth for the March quarter."
Recent Key Events:
-- Unveiled First Flow-based 802.11ac Wave 2 Wireless Solution. During the
quarter, we expanded our wireless portfolio with high-density 802.11ac
Wave 2 access points (APs) to address the network demands driven by
mobility, smart devices and the rapidly expanding wireless enabled
Internet of Things.
-- Enhanced Partner Program. To further empower and reward our channel
partners, we announced several enhancements to the Extreme Partner
Network (EPN) aimed at delivering increased predictability, expanded
training and solution-based incentive programs. We also announced two
new ExtremeWorks Managed Services offerings to allow partners to take
advantage of new consumption models while evolving their businesses to
be better positioned for future opportunities.
-- Integrations with VMware. To accelerate the adoption of the
Software-Defined Data Center (SDDC) for SMBs and enterprises, we
announced extended integration offerings with VMware to deliver IT
management and analytics solutions. As part of the collaboration, our
NetSight advanced network management system is now integrated with the
VMware vRealize® Suite.
-- Key Customer Wins in Focus Markets. Extreme Networks continued to
showcase customer momentum across the global education, healthcare,
manufacturing, sports and entertainment, and government markets. Notable
Customer wins include the Matanuska-Susitna Borough School District,
Royal Bolton NHS Trust, Instituto Nacional de Antropologia e Historia,
Becker Stahl-Service GmbH, SAK Holdings, Comision Reguladora de
Energia,Twin Rivers Unified School District. In addition, Extreme was
awarded NRG Stadium, Home of the Houston Texans and Super Bowl LI.
Fiscal Q2 2016 Financial Metrics:
2016 2015 Change
---- ---- ------
GAAP Net
Revenue
Product $105.4 $112.5 $(7.1) (6)%
Service 34.0 34.7 (0.8) (2)%
---- ---- ----
Total Net
Revenue $139.3 $147.2 $(7.9) (5)%
Gross
Margin 50.4% 51.1% (.7)% (1)%
Operating
Loss (3.8)% (7.5)% 3.7% (49)%
Net Loss $(7.2) $(13.1) $5.9 (45)%
Loss per
basic
share $(0.07) $(0.13) $0.06 (46)%
Non-GAAP
Net
Revenue
Product $105.4 $112.5 $(7.1) (6)%
Service 34.3 35.5 (1.2) (3)%
---- ---- ----
Total Net
Revenue $139.7 $148.0 $(8.3) (6)%
Gross
Margin 53.6% 54.6% (1.0)% (2)%
Operating
Margin 7.8% 4.5% 3.3% 72%
Net Income $9.0 $4.7 $4.3 91%
Earnings
per
diluted
share $0.09 $0.05 $0.04 71%
-- Cash and investments ended the
quarter at $85.9 million, as
compared to $82.0 million
from the prior quarter.
-- Accounts receivable balance
ending Q2 was $73.1 million,
with days sales outstanding
(DSO) of 48.
-- Inventory ending Q2 was $56.6
million, a decrease of $5.1
million from the prior
quarter.
Business Outlook:
For its third quarter of fiscal 2016 ending March 31, 2016, the Company is targeting GAAP revenue in a range of $117.6 million to $127.6 million with non-GAAP revenue in a range of $118.0 million to $128.0 million. GAAP gross margin is targeted between 49.9% and 51.2% and non-GAAP gross margin targeted between 53.5% and 54.5%. Operating expenses are targeted to be between $69.5 million and $72.0 million on a GAAP basis and $62.0 million to $64.5 million on a non-GAAP basis. GAAP net loss is targeted to be between $9.0 million to $13.0 million, or $0.09 to $0.13 per share. Non-GAAP earnings are targeted in a range of a net loss of $1.0 million to net income of $3.0 million, or a loss of $0.01 to net income of $0.03 per diluted share. The GAAP and non-GAAP net income (loss) targets are based on an estimated 103 million and 106 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, litigation expenses, overhead adjustments and the purchase accounting adjustment related to deferred service revenue.
Conference Call:
Extreme Networks will host a conference call at 8:00 a.m. Eastern (5:00 a.m. Pacific) today to review the second fiscal quarter results and third fiscal quarter 2016 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 October 28, 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 #:21560759.
About Extreme Networks:
Extreme Networks, Inc. (EXTR) delivers software-driven networking solutions that help IT departments everywhere deliver the ultimate business outcome: stronger connections with customers, partners and employees. Wired to wireless, desktop to datacenter, we go to extreme measures for our 20,000-plus customers in more than 80 countries, delivering 100% insourced support to organizations large and small, including some of the world's leading names in business, education, government, healthcare, manufacturing and hospitality. Founded in 1996, Extreme is headquartered in San Jose, California. For more information, visit Extreme's website or call 1-888-257-3000.
Extreme Networks and the Extreme Networks logo, ExtremeWireless, ExtremeControl and ExtremeAnalytics are either trademarks or registered trademarks of Extreme Networks, Inc. in the United States and/or other countries.
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, restructuring charges, litigation expenses, share-based compensation and overhead adjustments. The Company believes that excluding these items provides both management and investors with additional insight into its current operations, the trends affecting the Company, the Company's marketplace performance, and the Company's ability to generate cash from operations. 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 GAAP financial information. The Company has provided a non-GAAP reconciliation of the results for the periods presented in this release, which are adjusted to exclude certain items as indicated. 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:
Statements in this release, including those concerning the Company's business prospects, future financial and operating results, and overall future prospects 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. Actual results or events could differ materially from those anticipated in those forward-looking statements as a result of certain factors, including: failure to achieve targeted revenues and forecast demand from end customers, increased price competition, ongoing uncertainty in global economic conditions, infrastructure development or customer demand, collectability of receivables, the ability to meet current financial covenants, dependencies on third parties to manufacture our products, delays in development and commercialization of products under development, and ongoing litigation.
More information about potential factors that could affect the Company's business and financial results is included in the Company's 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". Except as required under the U.S. federal securities laws and the rules and regulations of the U.S. Securities and Exchange Commission, 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)
(Unaudited)
December 31, June 30,
2015 2015
---- ----
ASSETS
Current assets:
Cash and cash equivalents $85,865 $76,225
Accounts receivable, net of allowances of
$6,464 at December 31, 2015 and $2,396
at June 30, 2015 73,110 92,737
Inventories 56,601 58,014
Deferred income taxes 705 760
Prepaid expenses and other current assets 9,925 10,258
----- ------
Total current assets 226,206 237,994
Property and equipment, net 32,948 39,862
Intangible assets, net 35,138 52,132
Goodwill 70,877 70,877
Other assets 27,618 27,795
------ ------
Total assets $392,787 $428,660
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $14,625 $11,375
Accounts payable 25,536 40,135
Accrued compensation and benefits 28,995 25,195
Accrued warranty 10,415 8,676
Deferred revenue, net 75,548 76,551
Deferred distributors revenue, net of
cost of sales to distributors 31,677 40,875
Other accrued liabilities 29,968 32,623
------ ------
Total current liabilities 216,764 235,430
Deferred revenue, less current portion 21,505 23,231
Long-term debt, less current portion 47,375 55,500
Deferred income taxes 3,471 2,979
Other long-term liabilities 8,536 7,285
Commitments and contingencies
Stockholders' equity 95,136 104,235
------ -------
Total liabilities and stockholders'
equity $392,787 $428,660
======== ========
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
December 31, December 31, December 31, December 31,
2015 2014 2015 2014
---- ---- ---- ----
Net revenues:
Product $105,355 $112,501 $196,736 $215,173
Service 33,950 34,707 67,150 68,309
------ ------ ------ ------
Total net revenues 139,305 147,208 263,886 283,482
------- ------- ------- -------
Cost of revenues:
Product 57,103 60,496 104,037 114,521
Service 11,927 11,550 24,456 23,272
------ ------ ------ ------
Total cost of revenues 69,030 72,046 128,493 137,793
------ ------ ------- -------
Gross profit:
Product 48,252 52,005 92,699 100,652
Service 22,023 23,157 42,694 45,037
------ ------ ------ ------
Total gross profit 70,275 75,162 135,393 145,689
------ ------ ------- -------
Operating expenses:
Research and development 20,716 24,000 40,984 47,347
Sales and marketing 37,058 43,971 73,120 88,750
General and administrative 9,775 10,306 18,951 21,380
Acquisition and integration costs 807 3,500 1,145 7,558
Restructuring charge, net of
reversals 3,031 - 8,634 -
Amortization of intangibles 4,251 4,467 8,718 8,934
----- ----- ----- -----
Total operating expenses 75,638 86,244 151,552 173,969
------ ------ ------- -------
Operating loss (5,363) (11,082) (16,159) (28,280)
Interest income 29 196 56 342
Interest expense (809) (825) (1,635) (1,661)
Other income (expense), net 112 (64) 1,079 (498)
--- --- ----- ----
Loss before income taxes (6,031) (11,775) (16,659) (30,097)
Provision for income taxes 1,203 1,330 2,101 2,338
----- ----- ----- -----
Net loss $(7,234) $(13,105) $(18,760) $(32,435)
======= ======== ======== ========
Basic and diluted net loss per
share:
Net loss per share - basic $(0.07) $(0.13) $(0.18) $(0.33)
Net loss per share - diluted $(0.07) $(0.13) $(0.18) $(0.33)
Shares used in per share
calculation -basic 102,369 98,677 101,677 97,996
Shares used in per share
calculation -diluted 102,369 98,677 101,677 97,996
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
----------------
December 31, December 31,
2015 2014
---- ----
Net cash provided by operating
activities $13,967 $41,453
------- -------
Cash flows from investing
activities:
Capital expenditures (1,409) (3,962)
Proceeds from maturities of
investments and marketable
securities - 3,000
Proceeds from sales of investments
and marketable securities - 9,051
Purchases of intangible assets - (419)
--- ----
Net cash (used in) provided by
investing activities (1,409) 7,670
------ -----
Cash flows from financing
activities:
Borrowings under Revolving
Facility 15,000 24,000
Repayment of debt (19,875) (56,438)
Proceeds from issuance of common
stock 2,330 1,722
----- -----
Net cash used in financing
activities (2,545) (30,716)
------ -------
Foreign currency effect on cash (373) (2,625)
Net increase in cash and cash
equivalents 9,640 15,782
----- ------
Cash and cash equivalents at
beginning of period 76,225 73,190
------ ------
Cash and cash equivalents at end
of period $85,865 $88,972
======= =======
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, ("GAAP"), Extreme Networks uses non-GAAP measures 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, restructuring expenses and overhead adjustments.
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 Networks' management uses financial statements that do not include stock-based compensation expense, acquisition and integration costs, purchase accounting adjustments, amortization of intangibles, restructuring expenses, litigation expenses and overhead adjustments. 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 relating to deferred revenue 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.
Restructuring expenses. Restructuring expenses primarily consists 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.
Litigation expenses. Litigation expenses consist of legal and professional fees and expenses related to our on-going ligation matter as a result of a securities laws class action lawsuit.
Overhead adjustments. Overhead adjustment relate to service inventory overhead capitalization.
In addition to the non-GAAP measures discussed above, Extreme Networks uses free cash flow as a measure of operating performance. Free cash flow represents operating cash flows less net purchase of property and equipment on a GAAP basis. 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, and strengthen the balance sheet. A limitation of the utility of free cash flows as a measure of financial performance is that it does not represent the total increase 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, December 31, December 31, December 31,
2015 2014 2015 2014
---- ---- ---- ----
Revenue - GAAP Basis $139,305 $147,208 $263,886 $283,482
Adjustments:
Purchase accounting
adjustment 377 $766 754 $1,533
--- ---- --- ------
Revenue - Non-GAAP
Basis $139,682 $147,974 $264,640 $285,015
Non-GAAP Gross Margin Three Months Ended Six Months Ended
------------------ ----------------
December 31, December 31, December 31, December 31,
2015 2014 2015 2014
---- ---- ---- ----
Gross profit -GAAP
Basis $70,275 $75,162 $135,393 $145,689
Gross margin -GAAP
Basis percentage 50.4% 51.1% 51.3% 51.4%
Adjustments:
Stock based
compensation expense 554 574 1,216 1,121
Purchase accounting
adjustments 377 766 754 1,533
Amortization of
intangibles 3,708 4,292 8,000 8,583
Service inventory
overhead
capitalization - - (1,493) -
--- --- ------ ---
Gross profit - Non-
GAAP Basis $74,914 $80,794 $143,870 $156,926
Gross margin - Non-
GAAP Basis percentage 53.6% 54.6% 54.4% 55.1%
Non-GAAP Operating
Income Three Months Ended Six Months Ended
------------------ ----------------
December 31, December 31, December 31, December 31,
2015 2014 2015 2014
---- ---- ---- ----
GAAP operating loss $(5,363) $(11,082) $(16,159) $(28,280)
GAAP operating loss
percentage (3.8)% (7.5)% (6.1)% (10.0)%
Adjustments:
Stock based
compensation expense 3,945 4,750 8,616 9,563
Acquisition and
integration costs 807 3,500 1,145 7,558
Restructuring 3,031 - 8,634 -
charge,net
of reversal
Amortization of
intangibles 7,959 8,759 16,718 17,517
Purchase accounting
adjustments 377 766 754 1,533
Litigation 79 - 79 -
Service inventory
overhead
capitalization - - (1,493) -
--- --- ------ ---
Total adjustments to
GAAP operating loss $16,198 $17,775 $34,453 $36,171
Non-GAAP operating
income $10,835 $6,693 $18,294 $7,891
Non-GAAP operating
income percentage 7.8% 4.5% 6.9% 2.8%
Non-GAAP Net Income Three Months Ended Six Months Ended
------------------ ----------------
December 31, December 31, December 31, December 31,
2015 2014 2015 2014
---- ---- ---- ----
GAAP net loss $(7,234) $(13,105) $(18,760) $(32,435)
Adjustments:
Stock based
compensation expense 3,945 4,750 8,616 9,563
Acquisition and
integration costs 807 3,500 1,145 7,558
Restructuring charge,
net of reversal 3,031 - 8,634 -
Amortization of
intangibles 7,959 8,759 16,718 17,517
Purchase accounting
adjustments 377 766 754 1,533
Litigation 79 - 79 -
Service inventory
overhead
capitalization - - (1,493) -
--- --- ------ ---
Total adjustments to
GAAP net loss $16,198 $17,775 $34,453 $36,171
Non-GAAP net income $8,964 $4,670 $15,693 $3,736
Earnings per share
Non-GAAP diluted net
income per share $0.09 $0.05 $0.15 $0.04
Shares used in diluted
net income per share
calculation
100,788 103,997 100,606
Non-GAAP shares used 105,087
Free Cash Flow Three Months Ended Six Months Ended
------------------ ----------------
December 31, December 31, December 31, December 31,
2015 2014 2015 2014
---- ---- ---- ----
Cash flow used in
operations $7,441 $39,822 $13,967 $41,453
Add: PP&E CapEx
spending (776) $(1,178) (1,409) (3,962)
---- ------- ------ ------
Total free cash flow $6,665 $38,644 $12,558 $37,491
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SOURCE Extreme Networks, Inc.
