SAN JOSE, Calif., May 1, 2019 /PRNewswire/ -- Extreme Networks,
Inc. ("Extreme") (Nasdaq: EXTR) today released financial results
for its fiscal third quarter ended March 31, 2019.
Fiscal Third Quarter Results:
- Revenue $250.9 million, down 4%
year-over-year and down 1% quarter-over-quarter.
- GAAP gross margin 55.4% compared to 54.6%, in Q3 last
year.
- Non-GAAP gross margin 57.6% compared to 57.9%, in Q3 last
year.
- GAAP operating margin (0.9)% compared to (3.1)%, in Q3 last
year.
- Non-GAAP operating margin 5.6%, compared to 9.3%, in Q3 last
year.
- Net cash provided by operating activities $17.7 million.
- Free Cash Flow $12.7
million.
"We reported revenue towards the midpoint of our guidance range
reflecting seasonality in our business following a strong second
quarter. The execution of our acquisition strategy is coming
together: customers are embracing the capabilities and ease of use
of our software driven solutions; especially in our Automated
Campus and Agile Data Center pillars. We are at the early stages of
refreshing 70% of our products, which will put us in a better
competitive position; our supply chain operations are running more
efficiently than ever before; our digital transformation is paving
the way for higher productivity; and we have a strong balance sheet
resulting from consistent quarterly cash flow generation this
year," stated Ed Meyercord,
President and CEO of Extreme Networks.
Meyercord added, "Looking ahead, we expect FY19 revenue of
approximately $1 billion. Our outlook
for Q4 reflects the weakening economic environment in EMEA,
lengthening sales cycles in our wireless business reflecting the
introduction of WiFi6, and a lower backlog entering Q4. On a
positive note, our E-Rate filings were up 50% year-over-year, the
benefit of which will be realized in Q1 and Q2, FY20. We remain
committed to achieving our goal of a 15% operating margin and are
focused on driving greater operational efficiency to balance the
near-term revenue trends we are experiencing."
Recent Key Highlights:
- Brigham Young University,
(BYU), deployed Extreme's Smart OmniEdge™ solution to deliver
an interactive game-day experience and provide mobile ticketing and
payment at LaVell Edwards Stadium; making it the first collegiate
football stadium in Utah to have
an NFL-caliber, high-density Wi-Fi system. Extreme installed
approximately 1,250 access points throughout the 64,000-seat arena,
along with switching, management, and network access control
technology Extreme analytics software enables BYU to see which
applications fans are using on the Wi-Fi network, and what the
response time is for each application so they can optimize the
network for maximum application performance and provide a
customized experience through marketing initiatives.
- The State of Connecticut Department of Administrative
Services-Bureau of Enterprise Systems and Technology has
selected Extreme's wireless access points, switching, management
and analytics technology, part of its Smart OmniEdge™ solution, as
well as Extreme Professional Services, to provide secure, reliable
connectivity at one of its new locations in Hartford. The network will support multiple
agencies offering critical services to state employees and
residents. With this solution, the State consolidated the
management of multiple agency topologies onto one network, while
maintaining security and operations through segmentation.
- Extreme Networks announced investments in
software automation, and AI to help customers take the next
step in their digital transformation efforts and become an
autonomous enterprise. Extreme is investing 95 percent of its
research and development dollars into software. We are also
investing in AI this year to expand the automation capabilities
across our Smart OmniEdge™, Automated Campus™, and Agile Data
Center™ solutions, creating a secure, self-healing, self-driving
network—from the enterprise edge to the cloud.
- Extreme Networks announced the general
availability of Defender for IoT, part of its Smart OmniEdge™
portfolio. Defender for IoT is a simple security solution to help
organizations secure unsecured IoT devices. It can be deployed on
any network and is so easy to use even non-technical staff at
schools, hospitals, retailers and hospitality venues can use it to
isolate and protect both wired and wireless IoT devices from
cyberattacks.
- Extreme Networks, Inc was named an April 2019 Gartner Peer Insights Customers'
Choice for Wired and Wireless LAN Access Infrastructure and an
April 2019 Gartner Peer Insights
Customers' Choice for Data Center Networking.
1 Gartner defines Wired and Wireless LAN access
infrastructure vendors as those supplying wired and wireless
networking hardware and software that enables devices to connect to
the enterprise wired LAN or Wi-Fi network. Gartner defines
data center networking vendors as providers of hardware and/or
software solutions to deliver connectivity primarily within
enterprise data centers. This includes data center core/spine
switches, access switches (top of rack [ToR], leaf), virtual
switching, Ethernet fabrics, network operating systems (NOSs) and
network overlays, and the requisite management, automation and
orchestration of those components. The Gartner Peer Insights
Customers' Choice distinction is based on feedback and ratings from
end-user professionals who have experience purchasing, implementing
and/or using the product or service. Users praised our advanced
technology, ease of implementation and our customer support in the
latest Peer Insights ranking.
1 Gartner Peer Insights Customers'
Choice constitute the subjective opinions of individual end-user
reviews, ratings, and data applied against a documented
methodology; they neither represent the views of, nor constitute an
endorsement by, Gartner or its affiliates.
The Gartner Report(s) described herein, (the "Gartner
Report(s)") represent(s) research opinion or viewpoints published,
as part of a syndicated subscription service, by Gartner, Inc.
("Gartner"), and are not representations of fact. Each Gartner
Report speaks as of its original publication date (and not as of
the date of this press release) and the opinions expressed in the
Gartner Report(s) are subject to change without notice.
Fiscal Q3 2019
Financial Metrics:
|
|
(in millions, except
percentages and per share information)
|
|
|
|
Q3
FY'19
|
|
|
Q3
FY'18
|
|
|
Change
|
|
GAAP Results of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
190.8
|
|
|
$
|
203.5
|
|
|
$
|
(12.7)
|
|
|
(6)
|
%
|
Service
|
|
|
60.1
|
|
|
|
58.5
|
|
|
|
1.6
|
|
|
3
|
%
|
Total Net
Revenue
|
|
$
|
250.9
|
|
|
$
|
262.0
|
|
|
$
|
(11.1)
|
|
|
(4)
|
%
|
Gross
Margin
|
|
|
55.4
|
%
|
|
|
54.6
|
%
|
|
80 bps
|
|
-
|
|
Operating
Margin
|
|
|
(0.9)
|
%
|
|
|
(3.1)
|
%
|
|
220 bps
|
|
-
|
|
Net Loss
|
|
$
|
(6.9)
|
|
|
$
|
(13.6)
|
|
|
$
|
6.7
|
|
|
49
|
%
|
Loss per basic
share
|
|
$
|
(0.06)
|
|
|
$
|
(0.12)
|
|
|
$
|
0.06
|
|
|
50
|
%
|
Non-GAAP Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
190.8
|
|
|
$
|
203.5
|
|
|
$
|
(12.7)
|
|
|
(6)
|
%
|
Service
|
|
|
60.1
|
|
|
|
58.5
|
|
|
|
1.6
|
|
|
3
|
%
|
Total Net
Revenue
|
|
$
|
250.9
|
|
|
$
|
262.0
|
|
|
$
|
(11.1)
|
|
|
(4)
|
%
|
Gross
Margin
|
|
|
57.6
|
%
|
|
|
57.9
|
%
|
|
-30 bps
|
|
-
|
|
Operating
Margin
|
|
|
5.6
|
%
|
|
|
9.3
|
%
|
|
-370 bps
|
|
-
|
|
Net Income
|
|
$
|
9.3
|
|
|
$
|
19.0
|
|
|
$
|
(9.7)
|
|
|
(51)
|
%
|
Income per diluted
share
|
|
$
|
0.08
|
|
|
$
|
0.16
|
|
|
$
|
(0.08)
|
|
|
(50)
|
%
|
- Q3 ending Cash balance was $156.8
million, an increase of $16.2
million from Q2 and an increase of $53.6 million from Q3 last year, driven primarily
by higher cash flow from operations.
- Accounts receivable balance ending Q3 was $141.5 million, with days sales outstanding of
51.
- Q3 ending inventory was $57.6
million, a decrease of $0.7
million from Q2 and a decrease of $20.2 million from Q3 last year.
- Q3 ending gross debt was $182.9
million, a decrease of $2.4
million from Q2 and an increase of $2.4 million from Q3 last year. Net Debt*
decreased to $24.2 million from
$42.6 million in Q2.
Extreme uses the non-GAAP free cash flow metric as a measure of
operating performance. Free cash flow represents GAAP
operating cash flows less purchases of property, plant and
equipment. Extreme considers free cash flow as useful
information for management and investors regarding the amount of
cash generated by the business after the purchases of property,
plant and equipment, which can then be used to, among other things,
invest in Extreme's business, make strategic acquisitions, and
strengthen the balance sheet. A limitation of the utility of
the non-GAAP free cash flow metric 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. As
shown in the table below (in thousands):
Free Cash
Flow
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
Cash flow provided by
(used in) operations
|
$
|
17,709
|
|
|
$
|
(15,978)
|
|
|
$
|
79,502
|
|
|
$
|
(1,730)
|
|
Less: PP&E CapEx
spending
|
|
(5,041)
|
|
|
|
(8,690)
|
|
|
|
(16,181)
|
|
|
|
(21,999)
|
|
Total free cash
flow
|
$
|
12,668
|
|
|
$
|
(24,668)
|
|
|
$
|
63,321
|
|
|
$
|
(23,729)
|
|
*Net Debt is defined as gross debt minus loan fees minus cash:
as shown in the table below (in millions):
Gross debt
|
|
Loan fees
|
|
Cash
|
|
Net debt
|
|
$
|
182.9
|
|
$
|
1.9
|
|
$
|
156.8
|
|
$
|
24.2
|
|
Business Outlook:
Extreme's Business Outlook is based on current
expectations. The following statements are forward-looking,
and actual results could differ materially based on market
conditions and the factors set forth under "Forward-Looking
Statements" below.
For its fourth quarter of fiscal 2019, ending June 30, 2019, the Company is targeting revenue
in a range of $240.0 million to
$250.0 million. GAAP gross
margin is targeted between 52.9% and 55.1% and non-GAAP gross
margin is targeted between 57.5% and 59.5%. Operating expenses are
targeted to be between $139.8 million
and $145.4 million on a GAAP basis
and $130.5 million to $136.1 million on a non-GAAP basis. GAAP earnings
are targeted to be between a net loss of $17.8 million to $12.6
million or $0.15 to
$0.11 per basic share. Non-GAAP
net income earnings are targeted in a range of $2.5 million to $7.7
million, or $0.02 to
$0.6 per diluted share. The GAAP and
non-GAAP per share targets are based on 118.9 million and 121.6
million weighted shares outstanding, respectively.
The following table shows the GAAP to non-GAAP reconciliation
for Q4 FY'19 guidance:
|
Gross Margin
Rate
|
|
|
Operating Margin
Rate
|
|
|
Earnings per
Share
|
|
GAAP
|
52.9% -
55.1%
|
|
|
(5.4)% -
(3.1)%
|
|
|
($0.15) -
($0.11)
|
|
Estimated adjustments
for:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
product intangibles
|
4.2%
|
|
|
4.2%
|
|
|
$
|
0.08
|
|
Stock based
compensation
|
0.4%
|
|
|
3.6%
|
|
|
$
|
0.07
|
|
Amortization of non
product intangibles
|
-
|
|
|
0.6%
|
|
|
$
|
0.01
|
|
Non-GAAP
|
57.5% -
59.5%
|
|
|
3.1% -
5.1%
|
|
|
$0.02 -
$0.06
|
|
The total of percentage rate changes may not equal the total
change in all cases due to rounding.
Conference
Call:
Extreme will host a conference call at 8:00 a.m. Eastern (5:00
a.m. Pacific) today to review the third fiscal quarter
results as well as the business outlook for fourth fiscal quarter
ending June 30, 2019, 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 May
7, 2019. The conference call may also be heard by
dialing 1(877) 303-9826 or international 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 1 (855) 859-2056 or
international 1 (404) 537-3406. Conference ID # 7669229. The encore
recording will be available for 7 days following the call.
About Extreme Networks:
Extreme Networks, Inc. (EXTR) delivers software-driven solutions
from the enterprise edge to the cloud that are agile, adaptive, and
secure to enable digital transformation. Our 100% in-sourced
services and support are number one in the industry. Even with
30,000 customers globally, including half of the Fortune 50 and
some of the world's leading names in business, hospitality, retail,
transportation and logistics, education, government, healthcare and
manufacturing, we remain nimble and responsive to ensure customer
and partner success. We call this Customer-Driven Networking™.
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 are either
trademarks or registered trademarks of Extreme Networks, Inc. in
the United States and/or other
countries.
Non-GAAP Financial Measures:
Extreme provides all financial information required in
accordance with generally accepted accounting principles ("GAAP").
The Company is providing with this press release non-GAAP gross
margins, non-GAAP operating margins, non-GAAP operating expenses,
non-GAAP net income and non-GAAP earnings per share. In preparing
non-GAAP information, the Company has excluded, where applicable,
the impact of share-based compensation, acquisition and integration
costs, acquired inventory adjustments, amortization of acquired
intangibles, restructuring charges, gain on sale of equity
investment, loss on lease contracts, income tax and free cash
flow. 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 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 outlook, future financial and operating results,
acquired technologies and operations, future price increases,
changes to our supply chain, the introduction of new products, the
impact of tariffs on our products, including the relocation of
certain manufacturing activities outside of China in the future, the success of our
digital transformation initiatives, 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: our failure to achieve
targeted revenues and forecasted demand from end customers; a
highly competitive business environment for network switching
equipment; our effectiveness in controlling expenses; the
possibility that we might experience delays in the development or
introduction of new technology and products; customer response to
our new technology and products; risks related to pending or future
litigation; and a dependency on third parties for certain
components and for the manufacturing of our products.
More information about potential factors that could affect the
Company's business and financial results are described in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Risk Factors" included in the Company's
Quarterly Report on Form 10-Q for the three months ended
December 31, 2018 and Annual Report
on Form 10-K for the year ended June 30, 2018 and other
documents of the Company on file with the Securities and Exchange
Commission (available at www.sec.gov). 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.
For more
information, contact:
|
|
|
|
|
|
Investor
Relations
|
|
Media
Contact
|
Stan Kovler
|
|
Christi
Nicolacopoulos
|
919/595-4196
|
|
603/952-5005
|
Investor_relations@extremenetworks.com
|
|
pr@extremenetworks.com
|
EXTREME NETWORKS,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands)
(Unaudited)
|
|
|
|
March 31,
2019
|
|
|
June 30,
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
156,813
|
|
|
$
|
121,139
|
|
Accounts receivable,
net of allowance for doubtful accounts of $1,761 at March 31, 2019
and $1,478 at June 30, 2018
|
|
|
141,455
|
|
|
|
212,423
|
|
Inventories
|
|
|
57,645
|
|
|
|
63,867
|
|
Prepaid expenses and
other current assets
|
|
|
34,684
|
|
|
|
30,484
|
|
Total current
assets
|
|
|
390,597
|
|
|
|
427,913
|
|
Property and
equipment, net
|
|
|
73,057
|
|
|
|
78,519
|
|
Intangible assets,
net
|
|
|
57,362
|
|
|
|
77,092
|
|
Goodwill
|
|
|
138,577
|
|
|
|
139,082
|
|
Other
assets
|
|
|
51,917
|
|
|
|
47,642
|
|
Total
assets
|
|
$
|
711,510
|
|
|
$
|
770,248
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current portion of
long-term debt
|
|
$
|
9,009
|
|
|
$
|
9,007
|
|
Accounts
payable
|
|
|
49,143
|
|
|
|
75,689
|
|
Accrued compensation
and benefits
|
|
|
32,849
|
|
|
|
50,351
|
|
Accrued
warranty
|
|
|
13,206
|
|
|
|
12,807
|
|
Current portion,
deferred revenue, net
|
|
|
136,452
|
|
|
|
130,865
|
|
Other accrued
liabilities
|
|
|
62,088
|
|
|
|
81,153
|
|
Total current
liabilities
|
|
|
302,747
|
|
|
|
359,872
|
|
Deferred revenue,
less current portion
|
|
|
51,269
|
|
|
|
43,660
|
|
Long-term debt, less
current portion
|
|
|
171,993
|
|
|
|
188,749
|
|
Deferred income
taxes
|
|
|
1,844
|
|
|
|
6,135
|
|
Other long-term
liabilities
|
|
|
57,689
|
|
|
|
59,100
|
|
Commitments and
contingencies
|
|
|
—
|
|
|
|
—
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Convertible preferred
stock, $.001 par value, issuable in series,
2,000 shares authorized; none
issued
|
|
|
—
|
|
|
|
—
|
|
Common stock, $.001
par value, 750,000 shares authorized; 121,035 and 116,124 shares
issued, respectively; 118,669 and 116,124 shares outstanding,
respectively
|
|
|
121
|
|
|
|
116
|
|
Additional
paid-in-capital
|
|
|
979,775
|
|
|
|
942,397
|
|
Accumulated other
comprehensive loss
|
|
|
(2,549)
|
|
|
|
(1,703)
|
|
Accumulated
deficit
|
|
|
(836,379)
|
|
|
|
(828,078)
|
|
Treasury stock at
cost: 2,366 and 0 shares, respectively
|
|
|
(15,000)
|
|
|
|
—
|
|
Stockholders'
equity
|
|
|
125,968
|
|
|
|
112,732
|
|
Total liabilities and
stockholders' equity
|
|
$
|
711,510
|
|
|
$
|
770,248
|
|
EXTREME NETWORKS,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except
per share amounts)
(Unaudited)
|
|
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
190,740
|
|
|
$
|
203,527
|
|
|
$
|
558,027
|
|
|
$
|
543,151
|
|
Service
|
|
|
60,124
|
|
|
|
58,477
|
|
|
|
185,403
|
|
|
|
161,691
|
|
Total net
revenues
|
|
|
250,864
|
|
|
|
262,004
|
|
|
|
743,430
|
|
|
|
704,842
|
|
Cost of
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
86,876
|
|
|
|
94,485
|
|
|
|
256,906
|
|
|
|
253,002
|
|
Service
|
|
|
25,069
|
|
|
|
24,536
|
|
|
|
74,235
|
|
|
|
67,490
|
|
Total cost of
revenues
|
|
|
111,945
|
|
|
|
119,021
|
|
|
|
331,141
|
|
|
|
320,492
|
|
Gross
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
103,864
|
|
|
|
109,042
|
|
|
|
301,121
|
|
|
|
290,149
|
|
Service
|
|
|
35,055
|
|
|
|
33,941
|
|
|
|
111,168
|
|
|
|
94,201
|
|
Total gross
profit
|
|
|
138,919
|
|
|
|
142,983
|
|
|
|
412,289
|
|
|
|
384,350
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
|
52,081
|
|
|
|
50,920
|
|
|
|
155,526
|
|
|
|
131,112
|
|
Sales and
marketing
|
|
|
72,321
|
|
|
|
72,240
|
|
|
|
208,245
|
|
|
|
193,460
|
|
General and
administrative
|
|
|
15,479
|
|
|
|
11,707
|
|
|
|
42,136
|
|
|
|
35,561
|
|
Acquisition and
integration costs, net of bargain purchase gain
|
|
|
—
|
|
|
|
9,316
|
|
|
|
2,613
|
|
|
|
47,675
|
|
Restructuring charges,
net of reversals
|
|
|
—
|
|
|
|
4,920
|
|
|
|
1,282
|
|
|
|
4,920
|
|
Amortization of
intangibles
|
|
|
1,292
|
|
|
|
2,101
|
|
|
|
5,008
|
|
|
|
6,461
|
|
Total operating
expenses
|
|
|
141,173
|
|
|
|
151,204
|
|
|
|
414,810
|
|
|
|
419,189
|
|
Operating
loss
|
|
|
(2,254)
|
|
|
|
(8,221)
|
|
|
|
(2,521)
|
|
|
|
(34,839)
|
|
Interest
income
|
|
|
628
|
|
|
|
740
|
|
|
|
1,665
|
|
|
|
2,104
|
|
Interest
expense
|
|
|
(2,996)
|
|
|
|
(4,044)
|
|
|
|
(9,588)
|
|
|
|
(8,763)
|
|
Other (expense)
income, net
|
|
|
(433)
|
|
|
|
(359)
|
|
|
|
(345)
|
|
|
|
2,125
|
|
Loss before income
taxes
|
|
|
(5,055)
|
|
|
|
(11,884)
|
|
|
|
(10,789)
|
|
|
|
(39,373)
|
|
Provision
(benefit) for income taxes
|
|
|
1,877
|
|
|
|
1,729
|
|
|
|
(1,991)
|
|
|
|
1,787
|
|
Net loss
|
|
$
|
(6,932)
|
|
|
$
|
(13,613)
|
|
|
$
|
(8,798)
|
|
|
$
|
(41,160)
|
|
Basic and diluted net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share -
basic
|
|
$
|
(0.06)
|
|
|
$
|
(0.12)
|
|
|
$
|
(0.07)
|
|
|
$
|
(0.36)
|
|
Net loss per share -
diluted
|
|
$
|
(0.06)
|
|
|
$
|
(0.12)
|
|
|
$
|
(0.07)
|
|
|
$
|
(0.36)
|
|
Shares used in per
share calculation - basic
|
|
|
117,944
|
|
|
|
115,059
|
|
|
|
117,619
|
|
|
|
113,641
|
|
Shares used in per
share calculation - diluted
|
|
|
117,944
|
|
|
|
115,059
|
|
|
|
117,619
|
|
|
|
113,641
|
|
EXTREME NETWORKS,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
|
|
|
Nine Months
Ended
|
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,798)
|
|
|
$
|
(41,160)
|
|
Adjustments to
reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
20,026
|
|
|
|
15,417
|
|
Amortization of
intangible assets
|
|
|
19,734
|
|
|
|
17,771
|
|
Provision for doubtful
accounts
|
|
|
1,369
|
|
|
|
1,566
|
|
Stock-based
compensation
|
|
|
24,339
|
|
|
|
19,646
|
|
Deferred income
taxes
|
|
|
(6,030)
|
|
|
|
(1,900)
|
|
Unrealized/realized
loss (gain) on equity investment
|
|
|
-
|
|
|
|
(3,757)
|
|
Realized gain on
bargain purchase
|
|
|
-
|
|
|
|
(5,030)
|
|
Non-cash
interest
|
|
|
2,308
|
|
|
|
2,113
|
|
Other
|
|
|
15
|
|
|
|
328
|
|
Changes in operating
assets and liabilities, net of acquisitions
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
69,328
|
|
|
|
(45,376)
|
|
Inventories
|
|
|
6,222
|
|
|
|
5,122
|
|
Prepaid expenses and
other assets
|
|
|
(6,993)
|
|
|
|
(3,711)
|
|
Accounts
payable
|
|
|
(26,348)
|
|
|
|
28,912
|
|
Accrued compensation
and benefits
|
|
|
(17,502)
|
|
|
|
(4,779)
|
|
Deferred
revenue
|
|
|
13,197
|
|
|
|
10,365
|
|
Other current and
long-term liabilities
|
|
|
(11,365)
|
|
|
|
2,743
|
|
Net cash provided by
(used in) operating activities
|
|
|
79,502
|
|
|
|
(1,730)
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(16,181)
|
|
|
|
(21,999)
|
|
Business
acquisitions
|
|
|
—
|
|
|
|
(97,581)
|
|
Proceeds from sale of
investment
|
|
|
727
|
|
|
|
4,922
|
|
Net cash used in
investing activities
|
|
|
(15,454)
|
|
|
|
(114,658)
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
Borrowings under Term
Loan
|
|
|
—
|
|
|
|
100,000
|
|
Loan fees on
borrowings
|
|
|
(545)
|
|
|
|
(1,494)
|
|
Repayments of
debt
|
|
|
(17,403)
|
|
|
|
(13,278)
|
|
Repurchase of
stock
|
|
|
(15,000)
|
|
|
|
—
|
|
Proceeds from issuance
of common stock, net of tax withholding
|
|
|
13,044
|
|
|
|
4,657
|
|
Contingent
consideration obligations
|
|
|
(5,274)
|
|
|
|
(671)
|
|
Deferred payments on
an acquisition
|
|
|
(3,000)
|
|
|
|
—
|
|
Net cash (used in)
provided by financing activities
|
|
|
(28,178)
|
|
|
|
89,214
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
effect on cash
|
|
|
(196)
|
|
|
|
(99)
|
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash
|
|
|
35,674
|
|
|
|
(27,273)
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period
|
|
|
121,139
|
|
|
|
130,450
|
|
Cash and cash
equivalents at end of period
|
|
$
|
156,813
|
|
|
$
|
103,177
|
|
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 gross margin,
non-GAAP operating expenses non-GAAP earnings per diluted share 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 share-based compensation expense,
acquisition and integration costs, acquired inventory adjustments,
restructuring charges, amortization of acquired intangibles, gain
on sale of equity investment, loss on lease contracts, income tax
and free cash flow.
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 believes 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
stockholder value. In addition, because Extreme Networks has
historically reported certain non-GAAP results to investors, the
Company believes 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's management uses financial statements that do not
include share-based compensation expense, acquisition and
integration costs, acquired inventory adjustment, amortization of
intangibles, restructuring charges, gain on sale of equity
investment, loss on lease contracts, income tax and free cash
flow. Extreme's management also uses non-GAAP measures, in
addition to the corresponding GAAP measures, in reviewing the
Company's financial results.
As described above, Extreme excludes the following items from
one or more of its non-GAAP measures when applicable.
Stock-based compensation. This expense consists of
expenses for stock options, restricted stock and employee stock
purchases through its Employee Stock Purchase Plan. Extreme
Networks excludes share-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 share-based compensation expenses in future periods.
Acquisition and integration costs. Acquisition and
integration costs consist of legal and professional fees related to
the acquisition of a) Campus Fabric business, b) Data Center
business and c) the bargain purchase gain for the capital financing
business; Extreme Networks excludes these expenses since they
result from an event that is outside the ordinary course of
continuing operations.
Acquired inventory adjustments. Purchase
accounting adjustments relating to the mark up of acquired
inventory to fair value less disposal costs.
Amortization of acquired intangibles. Amortization
of acquired 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 and are non-cash in nature.
Restructuring expenses. Restructuring expenses primarily
consist of severance costs for employees which have no benefit to
continuing operations and accrued lease costs pertaining to the
estimated future obligations for non-cancelable lease payments
related to excess facilities. Extreme Networks excludes
restructuring expenses since they result from events that often
occur outside of the ordinary course of continuing operations.
Gain on sale of equity investment. The gain on the
sale of an equity investment refers to a third party acquisition
that acquired a business entity in which the Company had an equity
investment.
Loss on lease contracts. The loss on lease
contracts refers to leased facilities to which the Company has a
contractual obligation but will not receive a future financial
benefit.
Income tax. Income tax adjustments relate to
the tax impact of a reduced US tax rate applied to deferred tax
items pursuant to the recently enacted US tax legislation, the tax
benefit resulting from the impairment of a lease acquired from
Avaya in Canada, the release of a
deferred tax liability for amortizable goodwill given recently
enacted US tax legislation, the release of a deferred tax liability
related to a restructuring of our foreign operations, and the
impact of the release of our Australian valuation allowance.
We do not reflect a tax effect associated with the Non-GAAP
operating adjustments as the adjustments are primarily related to
the US entity which has a full valuation of various loss
carryforward tax attributes.
EXTREME NETWORKS,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
GAAP TO NON-GAAP
RECONCILIATION
(In thousands, except
percentages and per share amounts)
(Unaudited)
|
|
Non-GAAP
Revenue
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
Revenue - GAAP
Basis
|
$
|
250,864
|
|
|
$
|
262,004
|
|
|
$
|
743,430
|
|
|
$
|
704,842
|
|
Revenue - Non-GAAP
Basis
|
$
|
250,864
|
|
|
$
|
262,004
|
|
|
$
|
743,430
|
|
|
$
|
704,842
|
|
|
Non-GAAP Gross
Margin
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
Gross profit - GAAP
Basis
|
$
|
138,919
|
|
|
$
|
142,983
|
|
|
$
|
412,289
|
|
|
$
|
384,350
|
|
Gross margin - GAAP
Basis percentage
|
|
55.4
|
%
|
|
|
54.6
|
%
|
|
|
55.5
|
%
|
|
|
54.5
|
%
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
871
|
|
|
|
517
|
|
|
|
2,288
|
|
|
|
1,172
|
|
Acquired inventory
adjustments
|
|
—
|
|
|
|
597
|
|
|
|
—
|
|
|
|
4,784
|
|
Acquisition and
integration costs
|
|
—
|
|
|
|
3,068
|
|
|
|
1,752
|
|
|
|
7,586
|
|
Amortization of
intangibles
|
|
4,788
|
|
|
|
4,581
|
|
|
|
14,413
|
|
|
|
11,109
|
|
Total adjustments to
GAAP gross profit
|
$
|
5,659
|
|
|
$
|
8,763
|
|
|
$
|
18,453
|
|
|
$
|
24,651
|
|
Gross profit -
Non-GAAP
|
$
|
144,578
|
|
|
$
|
151,746
|
|
|
$
|
430,742
|
|
|
$
|
409,001
|
|
Gross margin -
Non-GAAP percentage
|
|
57.6
|
%
|
|
|
57.9
|
%
|
|
|
57.9
|
%
|
|
|
58.0
|
%
|
|
Non-GAAP Operating
Income
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
GAAP operating
loss
|
$
|
(2,254)
|
|
|
$
|
(8,221)
|
|
|
$
|
(2,521)
|
|
|
$
|
(34,839)
|
|
GAAP operating loss
percentage
|
|
(0.9)
|
%
|
|
|
(3.1)
|
%
|
|
|
(0.3)
|
%
|
|
|
(4.9)
|
%
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
871
|
|
|
|
517
|
|
|
|
2,288
|
|
|
|
1,172
|
|
Stock based
compensation expense, R&D
|
|
2,814
|
|
|
|
2,367
|
|
|
|
7,953
|
|
|
|
5,247
|
|
Stock based
compensation expense, S&M
|
|
3,187
|
|
|
|
2,735
|
|
|
|
8,529
|
|
|
|
7,077
|
|
Stock based
compensation expense, G&A
|
|
1,942
|
|
|
|
2,199
|
|
|
|
5,569
|
|
|
|
6,150
|
|
Acquisition and
integration costs
|
|
—
|
|
|
|
12,384
|
|
|
|
4,298
|
|
|
|
55,261
|
|
Restructuring charge,
net of reversal
|
|
—
|
|
|
|
4,920
|
|
|
|
1,282
|
|
|
|
4,920
|
|
Acquired inventory
adjustments
|
|
—
|
|
|
|
597
|
|
|
|
—
|
|
|
|
4,784
|
|
Litigation
|
|
—
|
|
|
|
207
|
|
|
|
—
|
|
|
|
(158)
|
|
Amortization of
intangibles
|
|
6,080
|
|
|
|
6,682
|
|
|
|
19,421
|
|
|
|
17,570
|
|
Loss on lease
contracts
|
|
1,288
|
|
|
|
—
|
|
|
|
1,288
|
|
|
|
—
|
|
Total adjustments to
GAAP operating loss
|
$
|
16,182
|
|
|
$
|
32,608
|
|
|
$
|
50,628
|
|
|
$
|
102,023
|
|
Non-GAAP operating
income
|
$
|
13,928
|
|
|
$
|
24,387
|
|
|
$
|
48,107
|
|
|
$
|
67,184
|
|
Non-GAAP operating
income percentage
|
|
5.6
|
%
|
|
|
9.3
|
%
|
|
|
6.5
|
%
|
|
|
9.5
|
%
|
|
Non-GAAP Net
Income
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
GAAP net
loss
|
$
|
(6,932)
|
|
|
$
|
(13,613)
|
|
|
$
|
(8,798)
|
|
|
$
|
(41,160)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
8,814
|
|
|
|
7,818
|
|
|
|
24,339
|
|
|
|
19,646
|
|
Acquisition and
integration costs
|
|
—
|
|
|
|
12,384
|
|
|
|
4,298
|
|
|
|
55,261
|
|
Restructuring charge,
net of reversal
|
|
—
|
|
|
|
4,920
|
|
|
|
1,282
|
|
|
|
4,920
|
|
Acquired inventory
adjustments
|
|
—
|
|
|
|
597
|
|
|
|
—
|
|
|
|
4,784
|
|
Litigation
|
|
—
|
|
|
|
207
|
|
|
|
—
|
|
|
|
(158)
|
|
Amortization of
intangibles
|
|
6,080
|
|
|
|
6,682
|
|
|
|
19,421
|
|
|
|
17,570
|
|
Gain on sale of equity
investment
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,757)
|
|
Loss on lease
contracts
|
|
1,288
|
|
|
|
—
|
|
|
|
1,288
|
|
|
|
—
|
|
Income tax
|
|
—
|
|
|
|
—
|
|
|
|
(7,770)
|
|
|
|
(3,102)
|
|
Total adjustments to
GAAP net loss
|
$
|
16,182
|
|
|
$
|
32,608
|
|
|
$
|
42,858
|
|
|
$
|
95,164
|
|
Non-GAAP net
income
|
$
|
9,250
|
|
|
$
|
18,995
|
|
|
$
|
34,060
|
|
|
$
|
54,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income
per share-diluted
|
$
|
0.08
|
|
|
$
|
0.16
|
|
|
$
|
0.28
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net
income per share-diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP shares
used
|
|
120,846
|
|
|
|
120,688
|
|
|
|
120,210
|
|
|
|
119,588
|
|
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SOURCE Extreme Networks, Inc.