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Extreme Networks Reports Q1 Revenue on the High Side of Guidance
Nov 01, 2010 (04:11 PM EDT)


Strength in Europe and Asia-Pacific Drive Revenue

SANTA CLARA, Calif., Nov. 1, 2010 /PRNewswire-FirstCall/ -- Extreme Networks, Inc. (Nasdaq: EXTR) today announced financial results for its 2011 fiscal first quarter ended September 26, 2010.  For the quarter, net revenue increased 26 percent to $83.8 million, as compared to revenue of $66.3 million in the first quarter of last year.  Previously issued guidance to investors was for net revenue of $81-$84 million."

"Both EMEA and APAC posted solid performance, as we benefited from improvement in orders for Service Providers in EMEA through our Strategic Alliance partners, and we closed large orders in Korea that we had mentioned on our fourth quarter earnings call," said Oscar Rodriguez, President & CEO of Extreme Networks. "While our over-all performance was solid, performance in North America did not meet our expectation, as we believe our decision to make changes in our sales organization affected our ability to execute within the quarter.  We believe the changes we are making will result in a stronger North American sales organization."

Rodriguez commented further, "As the global economies strengthen, we will continue to position in areas for additional growth.  Based on the strength of our technology and our focus on affordable leading-edge products, I believe we can increase our sales contribution through both traditional channel partners and Alliance channels, to drive company revenue growth and to take market share."

First quarter non-GAAP operating income was $4.6 million, or 5.5 percent of net revenue, representing significant improvement as compared to an operating loss of $4.6 million in the first quarter of last year.  Non-GAAP operating income in the 2010 fiscal fourth quarter was $5.6 million or 6.6 percent of net revenue.

In the first quarter the Company reported non-GAAP net income of $4.8 million or $0.05 per diluted share.  That compares to a non-GAAP net loss of $4.9 million or $0.05 loss per diluted share in the first quarter of last year, and to non-GAAP net income of $6.3 million or $0.07 per diluted share in the 2010 fiscal fourth quarter, which historically is the Company's strongest seasonal period.  Non-GAAP financial results exclude the impact of stock-based compensation, restructuring charges and litigation settlement costs.  A reconciliation of GAAP to non-GAAP financial measures is included in the accompanying financial tables.

Operating income on a GAAP basis was $2.5 million for the quarter, representing significant improvement as compared to an operating loss of $5.3 million for the first quarter of last year.  Reported operating income was $2.8 million in the 2010 fiscal fourth quarter.

Net income on a GAAP basis for quarter was $2.7 million or $0.03 per diluted share and   compares to a net loss on a GAAP basis for the 2010 fiscal first quarter of $5.5 million or $0.06 loss per diluted share.  In the 2010 fiscal fourth quarter, net income on a GAAP basis was $3.4 million or $0.04 per diluted share.

For the quarter, total net revenue in North America was $29.5 million, revenue in EMEA was $36.5 million, and revenue in APAC was $17.9 million.  That compares to revenue of $36.3 million in North America, $36.8 million in EMEA, and $12.4 million in APAC in the 2010 fiscal fourth quarter.

Total cash and investments increased $0.3 million from the fourth quarter to $132.7 million and the Company has no debt.  The increase in cash was tempered by payment of sales commissions resulting from accelerators earned in the fourth quarter and payment of a litigation settlement related to patent litigation.

2011 Fiscal Second Quarter non-GAAP Financial Guidance

For its 2011 fiscal second quarter ending December 26, 2010, the Company currently expects net revenue to be in a range of $85-$88 million and non-GAAP net income of $0.05 to $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 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 15208309.  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 settlement costs.  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 Consolidated Statement of Operations for the periods presented in this release, which are adjusted to exclude restructuring charges, share-based compensation expense and litigation settlement cost 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 infrastructures 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 revenue growth and market share.  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)








September 26,


June 27,



2010


2010



(unaudited)


(1)






ASSETS




Current assets:





Cash and cash equivalents

$                44,643


$      49,004


Short-term investments

48,387


64,854


Accounts receivable, net

39,663


42,057


Inventories, net

20,496


21,842


Deferred income taxes

476


392


Prepaid expenses and other current assets, net

4,494


3,932



Total current assets

158,159


182,081

Property and equipment, net

43,397


43,572

Marketable securities

39,670


18,561

Other assets, net

16,210


15,731



Total assets

$              257,436


$     259,945






                  LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:





Accounts payable

$                17,329


$        18,543


Accrued compensation and benefits

12,800


13,365


Restructuring liabilities

2,458


3,097


Accrued warranty

2,794


3,169


Deferred revenue, net  

28,402


29,552


Deferred revenue, net of cost of sales to distributors

15,424


18,345


Other accrued liabilities

14,602


13,381



Total current liabilities

93,809


99,452







Restructuring liabilities, less current portion

-


273

Deferred revenue, less current portion

7,610


7,633

Deferred income taxes

107


731

Other long-term liabilities

180


2,661






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;





130,421,666 issued at September 26, 2010 and 129,827,715 at June 27, 2010

130


130


Treasury stock, 39,625,305 at September 26, 2010 and June 27, 2010

(149,666)


(149,666)


Additional paid-in-capital

958,994


956,792


Accumulated other comprehensive income

2,721


1,100


Accumulated deficit

(656,449)


(659,161)



Total stockholders' equity

155,730


149,195



Total liabilities and stockholders' equity

$              257,436


$    259,945







(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 27, 2010.



EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unadited)











 Three Months Ended


September 26,

September 27,


2010

2009

Net revenues:




Product

$            69,213

$            50,759


Service

14,624

15,550



Total net revenues

83,837

66,309




Cost of revenues:




Product

30,830

23,718


Service

6,170

5,831



Total cost of revenues

37,000

29,549




Gross profit:




Product 

38,383

27,041


Service

8,454

9,719



Total gross profit

46837

36,760




Operating expenses:




Sales and marketing  

24,906

21,669


Research and development  

12,861

13,610


General and administrative 

6,585

7,245


Restructuring reversal, net of charge

-

(513)




Total operating expenses

43,352

42,011




Operating income (loss) 

2,485

(5,251)

Interest income

329

322

Interest expense

(30)

(39)

Other expense


(277)

(78)

Income (loss) before income taxes

2,507

(5,046)

Provision for income taxes

(205)

436




Net income (loss)

$              2,712

$            (5,482)

Basic and diluted net income (loss) per share:



Net income (loss) per share - basic

$                0.03

$              (0.06)

Net income (loss) per share - diluted

$                0.03

$              (0.06)

Shares used in per share calculation - basic

90,305

88,843

Shares used in per share calculation - diluted

90,610

88,843



EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)













Three Months Ended



September 26,


September 27,



2010


2009

Cash flows from operating activities:





 Net income (loss)


$              2,712


$            (5,482)

 Adjustments to reconcile net income (loss) to net cash





       provided by operating activities:





    Depreciation and amortization


1,539


1,647

    Change in value / loss (gain) on value of UBS option to put securities


2,429


(14)

    Auction rate securities mark to market, trading (gain) loss


(2,429)


14

    Provision for excess and obsolete inventory


11


785

    Deferred income taxes


(709)


18

    Stock-based compensation


2,109


1,140

    Restructuring reversal, net of charge


-


(513)

    Changes in operating assets and liabilities, net





      Accounts receivable


2,394


1,580

      Inventories


1,343


(4,559)

      Prepaid expenses and other assets


(1,041)


(2,457)

      Accounts payable


(1,214)


3,808

      Accrued compensation and benefits


(564)


(325)

      Restructuring liabilities


(912)


(1,339)

      Accrued warranty


(376)


250

      Deferred revenue, net


(1,173)


(243)

      Deferred revenue, net of cost of sales to distributors


(2,921)


2,543

      Other accrued liabilities


2,480


7,157

      Other long-term liabilities


(2,481)


119

 Net cash provided by operating activities


1,197


4,129






Cash flows used in investing activities:





 Capital expenditures


(1,362)


(1,227)

 Purchases of investments


(43,541)


(13,697)

 Proceeds from maturities of investments and marketable securities


5,800


2,550

 Proceeds from sales of investments and marketable securities


33,459


1,086

 Net cash used in investing activities


(5,644)


(11,288)






Cash flows provided by financing activities:





 Proceeds from issuance of common stock


86


225

 Net cash provided by financing activities


86


225






 Net decrease in cash and cash equivalents


(4,361)


(6,934)

Cash and cash equivalents at beginning of period


49,004


46,195

Cash and cash equivalents at end of period


$            44,643


$            39,261



EXTREME NETWORKS, INC.

GAAP TO NON-GAAP RECONCILIATION

(In thousands)

(unaudited)










Three Months Ended


September 26,


September 27,


2010


2009





NET INCOME (LOSS)        




Net income (loss) - GAAP Basis

$              2,712


$            (5,482)





Non-GAAP adjustments




Stock-based compensation expense

$              2,116


$              1,140

Restructuring reversal, net of charge

-


(513)

Total Non-GAAP adjustments

$              2,116


$                 627





Net income (loss) - Non-GAAP Basis

$              4,828


$            (4,855)













NON-GAAP ADJUSTMENTS




 Cost of product revenue

$                 199


$                   72

 Cost of service revenue

144


75

 Sales and marketing

572


296

 Research and development

611


375

 General and administrative

590


322

 Restructuring reversal, net of charge

-


(513)

 Total Non-GAAP adjustments

$              2,116


$                 627



SOURCE Extreme Networks, Inc.