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Extreme Networks Reports Fiscal Q3 Results
Apr 28, 2011 (04:04 PM EDT)


Strategic Transformation Remains on Track

SANTA CLARA, Calif., April 28, 2011 /PRNewswire/ -- Extreme Networks, Inc. (Nasdaq: EXTR) today announced financial results for its 2011 fiscal third quarter ended March 27, 2011.  For the quarter, total net revenue was $75.7 million, as compared to $78.2 million in the third quarter of fiscal 2010.  Previously updated guidance to investors was for net revenue of $75.5-76.5 million.

“We’ve made good progress as we continue to reposition the company to address high-growth verticals within the broader Enterprise, Service Provider, and Data Center markets,” said Oscar Rodriguez, President & CEO of Extreme Networks.  “We have focused our product portfolio and investments to target those key market verticals to accelerate future growth and investor returns.  Our strategy is on track and already showing results in the targeted vertical markets.”

In the third quarter the Company reported a non-GAAP net loss of $4.6 million or a loss of $0.05 per diluted share.  That compares to a non-GAAP net income of $5.4 million or $0.06 per diluted share in the third quarter of last year, and to non-GAAP net income of $5.1 million or $0.06 per diluted share in the 2011 fiscal second quarter.  Non-GAAP financial results exclude the impact of stock-based compensation, restructuring charges and litigation settlements.  A reconciliation of GAAP to non-GAAP financial measures is included in the accompanying financial tables.

Net loss on a GAAP basis for the quarter was $6.8 million or $0.07 per diluted share, including the impact of a $5.4 million charge to discontinue a product.  That compares to GAAP net income of $3.7 million or $0.04 per diluted share a year ago, and GAAP net income of $8.9 million or $0.10 per diluted share in the fiscal 2011 second quarter.

For the quarter, total net revenue in North America was $26.1 million, revenue in EMEA was $32.7 million, and revenue in APAC was $16.9 million.  That compares to revenue in North America of $32.6 million, revenue in EMEA of $31.1 million, and revenue in APAC of $14.6 million a year-ago.

Total cash and investments increased $5.0 million from the fiscal 2011 second quarter to $146.7 million and the Company has no long-term debt.

2011 Fiscal Fourth Quarter non-GAAP Financial Guidance

For its 2011 fiscal fourth quarter ending July 3, 2011, the Company currently expects net revenue to be in a range of $80-$85 million and non-GAAP net income of $0.03 to $0.05 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 58473013.  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 settlements.  We believe that excluding these items 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 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 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, share-based compensation expense and litigation settlements 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 delivers networks for the mobile world. The company's open network solutions enable a quality user experience, providing a platform for improved business agility. From the converged mobile edge of enterprises to virtualized clouds, and from data centers to global carrier networks that backhaul mobile traffic, Extreme Networks' extensible services architecture helps set a foundation for mobility, user awareness and faster performance to empower people and machines to connect and move seamlessly. Extreme Networks is headquartered in Santa Clara, California, with offices in more than 50 countries worldwide. For more information, visit: 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, including our guidance regarding future results, 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 27,



June 27,





2011



2010





(unaudited)












ASSETS







Current assets:








Cash and cash equivalents



$      50,379



51,944


Short-term investments



44,865



64,854


Accounts receivable, net



34,948



42,057


Inventories, net



18,821



21,842


Deferred income taxes



345



392


Prepaid expenses and other current assets, net



8,689



3,932


   Total current assets



158,047



185,021

Property and equipment, net



42,364



43,572

Marketable securities



51,484



18,561

Other assets, net



15,860



15,731


   Total assets



$    267,755



262,885









LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities:








Accounts payable



$      13,945



18,543


Accrued compensation and benefits



14,984



16,305


Restructuring liabilities



1,319



3,097


Accrued warranty



2,508



3,169


Deferred revenue, net  



31,803



29,552


Deferred revenue, net of cost of sales to distributors



15,506



18,345


Other accrued liabilities



19,089



13,381


   Total current liabilities



99,154



102,392









Restructuring liabilities, less current portion



-



273

Deferred revenue, less current portion



6,791



7,633

Deferred income taxes



112



731

Other long-term liabilities



529



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;








131,442,871 issued at March 27, 2011 and 129,827,715 at June 27, 2010



131



130


Treasury stock, 39,625,305 at March 27, 2011 and June 27, 2010



(149,666)



(149,666)


Additional paid-in-capital



961,698



956,792


Accumulated other comprehensive income



3,367



1,100


Accumulated deficit



(654,361)



(659,161)


   Total stockholders' equity



161,168



149,195


   Total liabilities and stockholders' equity



$    267,755



262,885



EXTREME NETWORKS, INC.



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



(In thousands, except per share amounts)



(unaudited)













































Three Months Ended



Nine Months Ended






March 27,


March 28,


March 27,


March 28,






2011


2010


2011


2010

Net revenues:












Product




$    61,065


$   63,197


$  200,611


$ 178,425


Service




14,634


15,000


44,056


45,478



Total net revenues


75,699


78,197


244,667


223,903













Cost of revenues:












Product




33,062


26,689


94,786


77,606


Service




6,074


6,154


18,501


18,421



Total cost of revenues


39,136


32,843


113,287


96,027













Gross profit:













Product




28,003


36,508


105,825


100,819


Service




8,560


8,846


25,555


27,057



Total gross profit


36,563


45,354


131,380


127,876













Operating expenses:












Sales and marketing


24,830


24,534


74,823


70,815


Research and development


11,237


11,290


36,126


37,345


General and administrative


6,066


6,128


18,614


19,893


Restructuring charge, net of reversal


1,043


371


1,043


4,004


Litigation settlement


(49)


-


(4,249)


-



Total operating expenses


43,127


42,323


126,357


132,057













Operating (loss) income




(6,564)


3,031


5,023


(4,181)

Interest income




298


408


959


1,118

Interest expense




(36)


(29)


(95)


(98)

Other (expense) income




(161)


51


(320)


(65)

(Loss) income before income taxes


(6,463)


3,461


5,567


(3,226)

Provision (benefit) for income taxes


378


(215)


767


(41)













Net (loss) income




$    (6,841)


$     3,676


$      4,800


$   (3,185)













Basic and diluted net (loss) income per share:









Net (loss) income per share - basic


$      (0.07)


$       0.04


$        0.05


$     (0.04)

Net (loss) income per share - diluted


$      (0.07)


$       0.04


$        0.05


$     (0.04)

Shares used in per share calculation - basic


91,578


89,577


91,103


89,277

Shares used in per share calculation - diluted


91,578


90,533


92,526


89,277



EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)











Nine Months Ended



March 27,


March 28,



2011


2010

Cash flows from operating activities:





 Net income (loss)


$      4,800


$   (3,185)

 Adjustments to reconcile net income (loss) to net cash





       provided by operating activities:





Decrease in accrued investment income


(2,280)


(612)

Depreciation and amortization


4,972


4,304

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


2,429


516

    Auction rate securities mark to market, trading gain


(2,429)


(516)

Provision for doubtful accounts


30


-

Excess and obsolete inventory


3,354


1,373

Deferred income taxes


(572)


48

Loss on retirement of assets


421


78

Stock-based compensation


3,780


4,571

Restructuring charge, net of reversal


-


152

Changes in operating assets and liabilities, net





Accounts receivable


7,079


1,017

Inventories


(340)


(12,626)

Prepaid expenses and other assets


(4,888)


(303)

Accounts payable


(4,598)


6,082

Accrued compensation and benefits


(1,320)


(554)

Restructuring liabilities


(2,053)


(2,825)

Accrued warranty


(662)


157

Deferred revenue, net


1,409


136

Deferred revenue, net of cost of sales to distributors


(2,839)


4,644

Other accrued liabilities


7,277


20

Other long-term liabilities


(2,131)


(157)

 Net cash provided by operating activities


11,439


2,320






Cash flows used in investing activities:





 Capital expenditures


(4,185)


(3,610)

 Purchases of investments


(90,223)


(41,103)

 Proceeds from maturities of investments and marketable securities


22,100


22,551

 Proceeds from sales of investments and marketable securities


57,490


12,762

 Net cash used in investing activities


(14,818)


(9,400)






Cash flows provided by financing activities:





 Proceeds from issuance of common stock


1,135


1,123

 Net cash provided by financing activities


1,135


1,123






Foreign Currency Effect on Cash


679


(51)






 Net decrease in cash and cash equivalents


(1,565)


(6,008)

Cash and cash equivalents at beginning of period


51,944


49,233

Cash and cash equivalents at end of period


$    50,379


$   43,225



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 27,

March 28,


March 27,

March 28,


2011

2010


2011

2010







Net income (loss)- GAAP Basis

$   (6,841)

$      3,676


$     4,800

$    (3,185)







Non-GAAP adjustments




Stock-based compensation expense

$     1,296

$      1,408


$     3,781

$      4,575

Litigation settlement

$         (49)

$              -


$    (4,249)

$              -

Restructuring charge, net of reversal

$     1,043

$         371


$     1,043

$      4,004


$     2,290

$      1,779


$        575

$      8,579







Net income (loss)  - Non-GAAP Basis

$   (4,551)

$      5,455


$     5,375

$      5,394







Non-GAAP adjustments






Cost of product revenue

$          85

$         124


$        318

$         347

Cost of service revenue

75

140


224

361

Sales and marketing

446

413


1407

1,392

Research and development

248

338


740

1,324

General and administrative

442

393


1092

1,151

Litigation settlement

(49)

-


(4,249)

-

Restructuring charge, net of reversal

1,043

371


1,043

4,004

Total non-GAAP adjustments

$     2,290

$      1,779


$        575

$      8,579



SOURCE Extreme Networks, Inc.