SAN JOSE, Calif., Aug. 14, 2017 /PRNewswire/ -- Extreme
Networks, Inc. ("Extreme") (Nasdaq: EXTR) today released financial
results for its fiscal fourth quarter and full fiscal year ended
June 30, 2017.
Fourth Quarter Results:
- Fourth quarter revenue was $178.7
million, an increase of 28% year-over-year.
- GAAP gross margin for the fourth fiscal quarter was 56.9% and
non-GAAP gross margin was 57.1%, an increase of 230 basis points
year-over-year.
- GAAP operating margin for the fourth fiscal quarter was 8.2%
and non-GAAP operating margin was 12.2%, an increase of 360 basis
points year-over-year.
- GAAP net income for the fourth fiscal quarter was $12.2 million, or $0.11 per diluted share, and non-GAAP net income
was $19.4 million, or $0.17 per diluted share, an increase of
$0.07 year-over-year.
Full Year Results:
- Fiscal year GAAP revenue was $598.1
million, an increase of 13% year-over-year.
- Fiscal year GAAP net loss per share was $0.08 and non-GAAP net income per share was
$0.46, an increase of $0.18 year-over-year.
"Led by solid organic growth and continued execution of our
recently acquired WLAN business, we concluded 2017 with one of our
strongest performances in recent years," stated Ed Meyercord, President and CEO of Extreme
Networks. "During our fourth quarter, revenue from our
Extreme solutions portfolio generated organic growth of 6% driven
by record wireless performance that was at or above current
industry growth rates, while our non-GAAP gross margins expanded by
230 basis points year-over-year to 57.1% through our high-quality
solution selling strategy and disciplined approach to
discounting. Even more noteworthy, for the first time since
2013, we achieved positive GAAP earnings, while delivering non-GAAP
earnings at or above our expectations for the ninth consecutive
quarter.
"The successful integration of our WLAN acquisition validates
our pursuit of accretive acquisitions and we are poised to build on
this momentum with the recent closing of the Avaya networking
business acquisition and the pending closing of the Brocade data
center networking business acquisition. Heading into fiscal
2018, we plan to leverage our expanded market share and significant
cross selling opportunities supported by the combination of these
transformative acquisitions, greater penetration across our target
verticals and the continued introduction of new products and
services. We anticipate these actions will enable us to
reach critical mass and build on our leadership position in the
enterprise networking industry as we continue to deliver
software-driven, end-to-end, wired and wireless networking
solutions for enterprise customers," concluded Meyercord.
Recent Key Events:
- Closed the Acquisition of Avaya's Networking Business:
Extreme completed the acquisition of Avaya's networking business in
July and has commenced the integration process. As part of this
transaction, Extreme acquired customers, employees and technology
assets from Avaya that strengthen Extreme's position as a leader
across the education, healthcare and government markets. Technology
assets include Avaya's award winning fabric technology for highly
secure, simplified access, management and control, in addition to a
new family of high performance modular switches, software tools and
IoT technology.
- Introduced New Networking Solutions and Enhancements to
Software, Switching, and Wireless portfolio:
-
- Information Governance Engine (software): Extreme's
Information Governance Engine replaces the current manual and
error-prone network compliance process with a fully automated and
repeatable solution capable of completing an assessment in minutes.
This addition to Extreme's product portfolio highlights the
company's focus on the technology and security needs of today's
healthcare industry and other verticals that are challenged by the
increasing use of mobile and IoT devices to improve patient
care.
- ExtremeGuest Analytics (software): Enables retailers and
hospitality to provide simple guest sign-on, obtain in-depth
analytics of shoppers/visitors, including demographics and
preferences, and gather metrics between stores and locations. These
analytics provide brick and mortar retailers with the tools they
need to compete with online retailers including information such as
the number of mobile customers that entered a store, new customers
vs. repeat customers, and customer duration in a store.
- ExtremeSwitching 200 Series (project name 'Street
Fighter'): A new family of economical, managed Gigabit Ethernet
switches that address the wired connections of PCs, servers and
storage devices in addition to PoE to power wireless APs and IP
phones. The family can also be flexibly managed via ExtremeCloud,
ExtremeManagement, web client or industry-standard command line
interface (CLI).
- ExtremeWireless WiNG AP 7602 and AP 7622: Priced for the
budget-conscious mass market applications and include
enterprise-grade features and Bluetooth customer engagement
applicable in our target verticals, especially hospitality and
retail.
- Key Customer Wins in Focus Markets: Extreme
Networks continued to showcase customer momentum across the
global education, hospitality and government markets. Customers
continue to note Extreme's software and services as value added
differentiators for choosing our solutions. Notable customer
wins in key vertical markets include the Tampa Bay Buccaneers,
the Metro Toronto Convention Centre (Canada's Largest Convention Center),
Suffolk University, Humble Independent
School District, Perth &
Kinross Council, Papworth Hospital
and Bowen Center.
- Update on Brocade Acquisition: Extreme expects to close
on its purchase of the data center networking assets of Brocade
Communications Systems ("Brocade") within 2-3 business days of the
completed Brocade – Broadcom Limited merger, currently expected to
close during Brocade's fourth fiscal quarter ending
October 29, 2017.
Fiscal Q4 2017 Financial Metrics:
(in millions, except
percentages and per share information)
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
GAAP Results of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
140.8
|
|
|
$
|
106.0
|
|
|
$
|
34.7
|
|
|
|
33
|
%
|
Service
|
|
|
38.0
|
|
|
|
33.6
|
|
|
|
4.4
|
|
|
|
13
|
%
|
Total Net
Revenue
|
|
$
|
178.7
|
|
|
$
|
139.6
|
|
|
$
|
39.1
|
|
|
|
28
|
%
|
Gross
Margin
|
|
|
56.9
|
%
|
|
|
52.1
|
%
|
|
480bps
|
|
|
|
9
|
%
|
Operating
Margin
|
|
|
8.2
|
%
|
|
|
(.3)
|
%
|
|
850bps
|
|
|
NM
|
|
Net Income
(Loss)
|
|
$
|
12.2
|
|
|
$
|
(2.3)
|
|
|
$
|
14.5
|
|
|
NM
|
|
Income (loss) per
basic and diluted share
|
|
$
|
0.11
|
|
|
$
|
(0.02)
|
|
|
$
|
0.13
|
|
|
NM
|
|
Non-GAAP Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
140.8
|
|
|
$
|
106.0
|
|
|
$
|
34.7
|
|
|
|
33
|
%
|
Service
|
|
|
38.0
|
|
|
|
34.0
|
|
|
|
4.0
|
|
|
|
12
|
%
|
Total Net
Revenue
|
|
$
|
178.7
|
|
|
$
|
140.0
|
|
|
$
|
38.7
|
|
|
|
28
|
%
|
Gross
Margin
|
|
|
57.1
|
%
|
|
|
54.8
|
%
|
|
230bps
|
|
|
|
5
|
%
|
Operating
Margin
|
|
|
12.2
|
%
|
|
|
8.6
|
%
|
|
360bps
|
|
|
|
42
|
%
|
Net Income
|
|
$
|
19.4
|
|
|
$
|
10.2
|
|
|
$
|
9.2
|
|
|
|
90
|
%
|
Earnings per diluted
share
|
|
$
|
0.17
|
|
|
$
|
0.10
|
|
|
$
|
0.07
|
|
|
|
70
|
%
|
- Cash and investments ended the quarter at $130.5 million, an increase of $13.2 million from the prior quarter and an
increase of $36.4 million from the
prior year.
- Accounts receivable balance ending Q4 was $120.8 million, with days sales outstanding
("DSO") of 61.
- Inventory ending Q4 was $45.9
million, a decrease of $1.8
million from the prior quarter and an increase of
$4.9 million from the prior
year.
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 first quarter of fiscal 2018 ending September 30, 2017, the Company is targeting
revenue in a range of $200.0 million to
$210.0 million. GAAP gross margin is targeted between
53.5% and 55.5% and non-GAAP gross margin is targeted between 55.5%
and 57.5%. Operating expenses are targeted to be between
$105.0 million and $109.0 million on
a GAAP basis and $96.0 million to $99.0
million on a non-GAAP basis. GAAP earnings are targeted to
be between a net loss of $1.2 million
to net income of $5.5 million or
earnings of $(0.01) to $0.05 per
diluted share. Non-GAAP earnings are targeted in a range of
net income of $12.5 million to $19.5
million, or $0.11 to $0.17 per
diluted share. The GAAP and non-GAAP net income targets are based
on an estimated 116.2 million average outstanding shares.
The following table shows the GAAP to non-GAAP reconciliation
for Q1FY'18 guidance:
|
Gross Margin
Rate
|
|
|
Operating
Margin Rate
|
|
|
Earnings per
Share
|
|
GAAP
|
53.5% -
55.5%
|
|
|
0.5% -
3.7%
|
|
|
($0.01) -
$0.05
|
|
Estimated adjustments
for:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
product intangibles
|
|
2.1%
|
|
|
|
2.1%
|
|
|
$
|
0.03
|
|
Stock based
compensation
|
|
0.1%
|
|
|
|
1.6%
|
|
|
$
|
0.03
|
|
Amortization of non
product intangibles
|
-
|
|
|
|
1.0%
|
|
|
$
|
0.02
|
|
Acquisition and
integration costs
|
-
|
|
|
|
2.3%
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
|
55.5% -
57.5%
|
|
|
7.5% -
10.4%
|
|
|
$0.11 -
$0.17
|
|
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 4:30 p.m. Eastern (1:30 p.m. Pacific) today to review the fourth
fiscal quarter results as well as the first fiscal quarter 2018
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 August 13, 2018. 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 # 54761197.
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, on premise or
through the cloud, we go to extreme measures for our customers in
more than 80 countries, delivering 100% insourced call-in technical
support to organizations large and small, including some of the
world's leading names in business, hospitality, retail,
transportation and logistics, education, government, healthcare,
and manufacturing. 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,
ExtremeManagement, 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 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
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, purchase accounting adjustments, acquired
inventory adjustments, amortization of acquired intangibles,
restructuring charges, executive transition costs, litigation
expenses 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
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, any anticipated benefits
related to the asset acquisition with Avaya and the potential asset
acquisition with Broadcom 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 ability to realize the
anticipated benefits of the acquisition of the WLAN business from
Zebra Technologies Corporation; our ability to successfully close
the Broadcom transaction (where we will ultimately acquire Brocade
assets) and to successfully integrate the acquired technologies and
operations from Avaya and Broadcom (where we will ultimately
acquire Brocade assets) into our business and operations;
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 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)
|
|
|
|
June 30,
2017
|
|
|
June 30, 2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
130,450
|
|
|
$
|
94,122
|
|
Accounts receivable,
net of allowances of $1,732 at June 30, 2017 and $3,257 at June 30,
2016
|
|
|
120,770
|
|
|
|
81,419
|
|
Inventories
|
|
|
45,880
|
|
|
|
40,989
|
|
Prepaid expenses and
other current assets
|
|
|
27,867
|
|
|
|
12,438
|
|
Total current
assets
|
|
|
324,967
|
|
|
|
228,968
|
|
Property and
equipment, net
|
|
|
30,240
|
|
|
|
29,580
|
|
Intangible assets,
net
|
|
|
25,337
|
|
|
|
19,762
|
|
Goodwill
|
|
|
80,216
|
|
|
|
70,877
|
|
Other
assets
|
|
|
22,586
|
|
|
|
25,236
|
|
Total
assets
|
|
$
|
483,346
|
|
|
$
|
374,423
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current portion of
long-term debt
|
|
$
|
12,280
|
|
|
$
|
17,628
|
|
Accounts
payable
|
|
|
31,587
|
|
|
|
30,711
|
|
Accrued compensation
and benefits
|
|
|
42,662
|
|
|
|
27,145
|
|
Accrued
warranty
|
|
|
10,007
|
|
|
|
9,600
|
|
Deferred revenue,
net
|
|
|
79,048
|
|
|
|
72,934
|
|
Deferred distributors
revenue, net of cost of sales to distributors
|
|
|
43,525
|
|
|
|
26,817
|
|
Other accrued
liabilities
|
|
|
36,713
|
|
|
|
26,691
|
|
Total current
liabilities
|
|
|
255,822
|
|
|
|
211,526
|
|
Deferred revenue,
less current portion
|
|
|
25,293
|
|
|
|
21,926
|
|
Long-term debt, less
current portion
|
|
|
80,422
|
|
|
|
37,446
|
|
Deferred income
taxes
|
|
|
6,576
|
|
|
|
4,693
|
|
Other long-term
liabilities
|
|
|
8,526
|
|
|
|
8,635
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
106,707
|
|
|
|
90,197
|
|
Total liabilities and
stockholders' equity
|
|
$
|
483,346
|
|
|
$
|
374,423
|
|
EXTREME NETWORKS,
INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(In thousands, except
per share amounts)
|
(Unaudited)
|
|
|
|
Three Months
Ended
|
|
|
Year
Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
140,750
|
|
|
$
|
106,017
|
|
|
$
|
451,459
|
|
|
$
|
395,464
|
|
Service
|
|
|
37,951
|
|
|
|
33,600
|
|
|
|
146,659
|
|
|
|
132,925
|
|
Total net
revenues
|
|
|
178,701
|
|
|
|
139,617
|
|
|
|
598,118
|
|
|
|
528,389
|
|
Cost of
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
61,740
|
|
|
|
54,462
|
|
|
|
217,727
|
|
|
|
208,739
|
|
Service
|
|
|
15,222
|
|
|
|
12,480
|
|
|
|
55,906
|
|
|
|
48,862
|
|
Total cost of
revenues
|
|
|
76,962
|
|
|
|
66,942
|
|
|
|
273,633
|
|
|
|
257,601
|
|
Gross
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
79,010
|
|
|
|
51,555
|
|
|
|
233,732
|
|
|
|
186,725
|
|
Service
|
|
|
22,729
|
|
|
|
21,120
|
|
|
|
90,753
|
|
|
|
84,063
|
|
Total gross
profit
|
|
|
101,739
|
|
|
|
72,675
|
|
|
|
324,485
|
|
|
|
270,788
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
|
26,721
|
|
|
|
18,885
|
|
|
|
93,724
|
|
|
|
78,721
|
|
Sales and
marketing
|
|
|
46,103
|
|
|
|
39,364
|
|
|
|
162,927
|
|
|
|
150,806
|
|
General and
administrative
|
|
|
10,568
|
|
|
|
9,767
|
|
|
|
37,864
|
|
|
|
37,675
|
|
Acquisition and
integration costs
|
|
|
3,197
|
|
|
|
-
|
|
|
|
13,105
|
|
|
|
1,145
|
|
Restructuring and
related charges, net of reversals
|
|
|
(676)
|
|
|
|
998
|
|
|
|
8,896
|
|
|
|
10,990
|
|
Amortization of
intangibles
|
|
|
1,192
|
|
|
|
4,141
|
|
|
|
8,702
|
|
|
|
17,001
|
|
Total operating
expenses
|
|
|
87,105
|
|
|
|
73,155
|
|
|
|
325,218
|
|
|
|
296,338
|
|
Operating income
(loss)
|
|
|
14,634
|
|
|
|
(480)
|
|
|
|
(733)
|
|
|
|
(25,550)
|
|
Interest
income
|
|
|
315
|
|
|
|
29
|
|
|
|
689
|
|
|
|
113
|
|
Interest
expense
|
|
|
(1,086)
|
|
|
|
(694)
|
|
|
|
(4,086)
|
|
|
|
(3,098)
|
|
Other income
(expense), net
|
|
|
(598)
|
|
|
|
174
|
|
|
|
(47)
|
|
|
|
987
|
|
Income (loss) before
income taxes
|
|
|
13,265
|
|
|
|
(971)
|
|
|
|
(4,177)
|
|
|
|
(27,548)
|
|
Provision for income
taxes
|
|
|
1,088
|
|
|
|
1,369
|
|
|
|
4,340
|
|
|
|
4,336
|
|
Net income
(loss)
|
|
$
|
12,177
|
|
|
$
|
(2,340)
|
|
|
$
|
(8,517)
|
|
|
$
|
(31,884)
|
|
Basic and diluted net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
share - basic
|
|
$
|
0.11
|
|
|
$
|
(0.02)
|
|
|
$
|
(0.08)
|
|
|
$
|
(0.31)
|
|
Net income (loss) per
share - diluted
|
|
$
|
0.11
|
|
|
$
|
(0.02)
|
|
|
$
|
(0.08)
|
|
|
$
|
(0.31)
|
|
Shares used in per
share calculation - basic
|
|
|
110,500
|
|
|
|
104,837
|
|
|
|
108,273
|
|
|
|
103,074
|
|
Shares used in per
share calculation - diluted
|
|
|
114,524
|
|
|
|
104,837
|
|
|
|
108,273
|
|
|
|
103,074
|
|
EXTREME NETWORKS,
INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(In
thousands)
|
(Unaudited)
|
|
|
|
Year
Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Net cash provided by
operating activities
|
|
$
|
59,283
|
|
|
$
|
30,366
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(10,425)
|
|
|
|
(5,327)
|
|
Acquisition
|
|
|
(51,088)
|
|
|
|
-
|
|
Deposit related to
future acquisition
|
|
|
(10,239)
|
|
|
|
-
|
|
Net cash used in
investing activities
|
|
|
(71,752)
|
|
|
|
(5,327)
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
Borrowings under
Revolving Facility
|
|
|
-
|
|
|
|
15,000
|
|
Borrowings under Term
Loan
|
|
|
48,250
|
|
|
|
|
|
Loan fees on
borrowings
|
|
|
(1,327)
|
|
|
|
|
|
Repayment of
debt
|
|
|
(10,038)
|
|
|
|
|
|
Proceeds from issuance
of common stock
|
|
|
11,823
|
|
|
|
4,637
|
|
Net cash provided by
(used in) financing activities
|
|
|
48,708
|
|
|
|
19,637
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
effect on cash
|
|
|
89
|
|
|
|
(404)
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
and cash equivalents
|
|
|
36,328
|
|
|
|
44,272
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period
|
|
|
94,122
|
|
|
|
76,225
|
|
Cash and cash
equivalents at end of period
|
|
$
|
130,450
|
|
|
$
|
120,497
|
|
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 share-based compensation expense,
acquisition and integration costs, purchase accounting adjustments,
acquired inventory adjustments, amortization of intangibles,
restructuring expenses, executive transition expenses, litigation
expense 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 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
shareholder 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, purchase accounting adjustments, acquired
inventory adjustment, amortization of intangibles, restructuring
expenses, executive transition costs, litigation expenses and
overhead adjustments. 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.
Share-based compensation. This expense consists of
expenses for stock options, restricted stock and employee stock
purchases through its ESPP. 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) Zebra Technologies Corporation's wireless LAN
business b) Avaya, Inc.'s networking assets, as well as the
fabric-based secure networking solutions and network security
solutions business of Avaya, Inc., and c) Brocade's data center
assets; Extreme Networks excludes these expenses since they result
from an event that is outside the ordinary course of continuing
operations.
Purchase accounting adjustments. 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.
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 accrued lease costs pertaining to the estimated future
obligations for non-cancelable lease payments and accelerated
depreciation of leasehold improvements 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.
Executive transition expenses. Executive transition
expenses consist of severance and termination benefits and legal
transition cash transactions. The expenses are incurred
through execution of pre-established employment contracts with
senior executives. The Company does not believe these
expenses are reflective of ongoing cash requirements related to its
operating results.
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 relates to
service inventory overhead capitalization, this was a one-time
event and was non-cash in nature.
In addition to the non-GAAP measures discussed above, Extreme
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 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's 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
percentage and per share amounts)
|
(Unaudited)
|
|
Non-GAAP
Revenue
|
Three Months
Ended
|
|
|
Year
Ended
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue - GAAP
Basis
|
$
|
178,701
|
|
|
$
|
139,617
|
|
|
$
|
598,118
|
|
|
$
|
528,389
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting
adjustment
|
|
-
|
|
|
|
377
|
|
|
|
133
|
|
|
|
1,508
|
|
Revenue - Non-GAAP
Basis
|
$
|
178,701
|
|
|
$
|
139,994
|
|
|
$
|
598,251
|
|
|
$
|
529,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Gross
Margin
|
Three Months
Ended
|
|
|
Year
Ended
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit - GAAP
Basis
|
$
|
101,739
|
|
|
$
|
72,675
|
|
|
$
|
324,485
|
|
|
$
|
270,788
|
|
Gross margin - GAAP
Basis percentage
|
|
56.9
|
%
|
|
|
52.1
|
%
|
|
|
54.3
|
%
|
|
|
51.2
|
%
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
185
|
|
|
|
279
|
|
|
|
922
|
|
|
|
1,923
|
|
Purchase accounting
adjustments
|
|
-
|
|
|
|
377
|
|
|
|
133
|
|
|
|
1,508
|
|
Acquired inventory
adjustments
|
|
-
|
|
|
|
-
|
|
|
|
4,263
|
|
|
|
-
|
|
Acquisition and
integration costs
|
|
(579)
|
|
|
|
-
|
|
|
|
4,525
|
|
|
|
-
|
|
Amortization of
intangibles
|
|
633
|
|
|
|
3,417
|
|
|
|
6,661
|
|
|
|
14,834
|
|
Service inventory
overhead capitalization
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,493)
|
|
Gross profit -
Non-GAAP Basis
|
$
|
101,978
|
|
|
$
|
76,748
|
|
|
$
|
340,989
|
|
|
$
|
287,560
|
|
Gross margin -
Non-GAAP Basis percentage
|
|
57.1
|
%
|
|
|
54.8
|
%
|
|
|
57.0
|
%
|
|
|
54.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Operating
Income
|
Three Months
Ended
|
|
|
Year
Ended
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating income
(loss) percentage
|
$
|
14,634
|
|
|
$
|
(480)
|
|
|
$
|
(733)
|
|
|
$
|
(25,550)
|
|
GAAP operating income
(loss) percentage
|
|
8.2
|
%
|
|
|
(.3)
|
%
|
|
|
(.1)
|
%
|
|
|
(4.8)
|
%
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
3,304
|
|
|
|
2,673
|
|
|
|
12,633
|
|
|
|
14,792
|
|
Acquisition and
integration costs
|
|
2,618
|
|
|
|
-
|
|
|
|
17,630
|
|
|
|
1,145
|
|
Restructuring charge,
net of reversal
|
|
(676)
|
|
|
|
998
|
|
|
|
8,896
|
|
|
|
10,990
|
|
Acquired inventory
adjustments
|
|
-
|
|
|
|
-
|
|
|
|
4,263
|
|
|
|
-
|
|
Amortization of
intangibles
|
|
1,825
|
|
|
|
7,558
|
|
|
|
15,363
|
|
|
|
31,835
|
|
Purchase accounting
adjustments
|
|
-
|
|
|
|
377
|
|
|
|
133
|
|
|
|
1,508
|
|
Executive transition
costs
|
|
-
|
|
|
|
771
|
|
|
|
34
|
|
|
|
2,166
|
|
Litigation
|
|
166
|
|
|
|
167
|
|
|
|
385
|
|
|
|
331
|
|
Service inventory
overhead capitalization
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,493)
|
|
Total adjustments to
GAAP operating income (loss)
|
$
|
7,237
|
|
|
$
|
12,544
|
|
|
$
|
59,337
|
|
|
$
|
61,274
|
|
Non-GAAP operating
income
|
$
|
21,871
|
|
|
$
|
12,064
|
|
|
$
|
58,604
|
|
|
$
|
35,724
|
|
Non-GAAP operating
income percentage
|
|
12.2
|
%
|
|
|
8.6
|
%
|
|
|
9.8
|
%
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Net
Income
|
Three Months
Ended
|
|
|
Year
Ended
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income
(loss)
|
$
|
12,177
|
|
|
$
|
(2,340)
|
|
|
$
|
(8,517)
|
|
|
$
|
(31,884)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
3,304
|
|
|
|
2,673
|
|
|
|
12,633
|
|
|
|
14,792
|
|
Acquisition and
integration costs
|
|
2,618
|
|
|
|
-
|
|
|
|
17,630
|
|
|
|
1,145
|
|
Restructuring charge,
net of reversal
|
|
(676)
|
|
|
|
998
|
|
|
|
8,896
|
|
|
|
10,990
|
|
Amortization of
intangibles
|
|
1,825
|
|
|
|
7,558
|
|
|
|
15,363
|
|
|
|
31,835
|
|
Acquired inventory
adjustments
|
|
-
|
|
|
|
-
|
|
|
|
4,263
|
|
|
|
-
|
|
Purchase accounting
adjustments
|
|
-
|
|
|
|
377
|
|
|
|
133
|
|
|
|
1,508
|
|
Executive transition
costs
|
|
-
|
|
|
|
771
|
|
|
|
34
|
|
|
|
2,166
|
|
Litigation
|
|
166
|
|
|
|
167
|
|
|
|
385
|
|
|
|
331
|
|
Service inventory
overhead capitalization
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,493)
|
|
Total adjustments to
GAAP net income (loss)
|
$
|
7,237
|
|
|
$
|
12,544
|
|
|
$
|
59,337
|
|
|
$
|
61,274
|
|
Non-GAAP net
income
|
$
|
19,414
|
|
|
$
|
10,204
|
|
|
$
|
50,820
|
|
|
$
|
29,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP diluted net
income per share
|
$
|
0.17
|
|
|
$
|
0.10
|
|
|
$
|
0.46
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
diluted net income per share calculation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP shares
used
|
|
114,524
|
|
|
|
107,275
|
|
|
|
111,472
|
|
|
|
105,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free Cash
Flow
|
Three Months
Ended
|
|
|
Year
Ended
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by
operations
|
$
|
15,161
|
|
|
$
|
11,451
|
|
|
$
|
59,283
|
|
|
$
|
30,366
|
|
Less: PP&E CapEx
spending
|
|
(2,593)
|
|
|
$
|
(2,529)
|
|
|
|
(10,425)
|
|
|
|
(5,327)
|
|
Total free cash
flow
|
$
|
12,568
|
|
|
$
|
8,922
|
|
|
$
|
48,858
|
|
|
$
|
25,039
|
|
View original content with
multimedia:http://www.prnewswire.com/news-releases/extreme-networks-reports-fourth-quarter-and-fiscal-year-2017-financial-results-300504034.html
SOURCE Extreme Networks, Inc.