SAN JOSE, Calif., Nov. 7, 2017 /PRNewswire/ -- Extreme
Networks, Inc. ("Extreme") (Nasdaq: EXTR) today released financial
results for its fiscal first quarter ended September 30,
2017.
First Quarter Results:
- First quarter revenue was $211.7
million, an increase of 73% year-over-year.
- GAAP gross margin for the first fiscal quarter was 53.1% and
non-GAAP gross margin was 56.7%.
- GAAP operating margin for the first fiscal quarter was 2.1% and
non-GAAP operating margin was 10.6%, an increase of 540 and 280
basis points, respectively, year-over-year.
- GAAP net income for the first fiscal quarter was $4.4 million, or $0.04 per diluted share. Non-GAAP net income was
$18.6 million, or $0.16 per diluted share, an increase of
$10.8 million and $0.09, respectively, year-over-year.
"Our first quarter results exceeded our expectations on both the
top and bottom line, making this our tenth consecutive quarter of
solid financial performance and a strong start to our fiscal year,"
stated Ed Meyercord, President and
CEO of Extreme Networks. "We are especially pleased to report
another consecutive quarter of organic growth primarily driven by
our enterprise switching solutions and solid wireless performance
that was above current industry growth rates. Our continued
financial improvement, combined with our accretive acquisitions,
continues to drive us toward our goal of greater than 15% operating
margins by the end of fiscal 2018."
"With the completion of the acquisitions of the Avaya and
Brocade campus and data center networking businesses, our teams are
working hard to ensure a smooth transition for our new customers,
partners and employees," continued Meyercord. "The newly refreshed
product and software portfolios we acquired positions us to expand
our market share with cross-selling opportunities and increased
penetration across our targeted verticals. We believe our
improved position as a Visionary in the 2017 Gartner Magic Quadrant
for Wired and Wireless LAN Access Infrastructure compared to the
previous year provides further evidence of the innovation and
quality of our products and solutions, and supports our strategy of
providing, end-to-end, networking solutions for enterprise
customers from the access edge to the data center with 100%
insourced customer service."
Recent Key Events:
- Completed Acquisition of Brocade's Data Center Business:
Extreme announced the closing of its acquisition of Brocade
Communications Systems, Inc.'s datacenter switching, routing and
analytics business. This acquisition secures Extreme's position as
the third largest player in the enterprise networking market and
includes the VDX, MLX, SLX, CES, CER, Workflow Composer, Automation
Suites, and certain other data center related products that enhance
Extreme's data center technology portfolio.
- Industry Recognition: For the third consecutive year,
Extreme has been positioned furthest to the right and this year, is
also positioned highest to the top by Gartner, Inc. in the
"Visionaries" quadrant of the Gartner Magic Quadrant1
for Wired and Wireless LAN Access Infrastructure. In addition,
Extreme is rated in Gartner's Peer Insights among 21 vendors in the
Data Center Hardware Networking category. As of October 31, 2017, Extreme has an overall rating
of 4.8 out of 5 based on 65 customer reviews.
- First Product Announcement
Integrating Avaya's Networking Technology: To address
the time constraints and resources spent on managing complex
networks, Extreme introduced its Secure Automated Campus™, a
cost-effective alternative to outdated traditional networking
solutions that delivers plug-and-play simplicity and true business
agility. The solution combines Avaya's field-proven Fabric Connect
infrastructure, Extreme's industry-leading Extreme Management
Center ™ and Extreme's top-ranked support services to eliminate
networking complexity, increase security and deliver increased
visibility into the network.
- Introduced New WiNG Solution for Hospitality
Deployments: Extreme announced its ExtremeWireless™ WiNG AP
7612 designed to support the specific needs of the hospitality
industry. With the WiNG AP 7612, Extreme offers customers a
solution with hotel-grade aesthetics, faster installation and
application Quality of Service right at the AP.
1 Gartner, Inc.: Magic Quadrant for the Wire and
Wireless LAN Access Infrastructure, Tim
Zimmerman, Christian Canales,
Bill Menezes, October 17, 2017
Disclaimer: Gartner does not endorse any vendor, product or
service depicted in its research publications, and does not advise
technology users to select only those vendors with the highest
ratings or other designation. Gartner research publications consist
of the opinions of Gartner's research organization and should not
be construed as statements of fact. Gartner disclaims all
warranties, expressed or implied, with respect to this research,
including any warranties of merchantability or fitness for a
particular purpose.
Disclaimer: Gartner Peer Insights reviews constitute the
subjective opinions of individual end-users based on their own
experiences, and do not represent the views of Gartner or its
affiliates.
Fiscal Q1 2018
Financial Metrics:
|
|
(in millions, except
percentages and per share information)
|
|
|
|
Q1
FY'18
|
|
|
Q1
FY'17
|
|
|
Change
|
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
|
|
|
|
GAAP Results of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
164.8
|
|
|
$
|
90.1
|
|
|
$
|
74.7
|
|
|
|
83
|
%
|
Service
|
|
|
46.9
|
|
|
|
32.5
|
|
|
|
14.4
|
|
|
|
44
|
%
|
Total Net
Revenue
|
|
$
|
211.7
|
|
|
$
|
122.6
|
|
|
$
|
89.1
|
|
|
|
73
|
%
|
Gross
Margin
|
|
|
53.1
|
%
|
|
|
53.7
|
%
|
|
-60bps
|
|
|
|
(1)
|
%
|
Operating
Margin
|
|
|
2.1
|
%
|
|
|
(3.3)
|
%
|
|
540bps
|
|
|
|
164
|
%
|
Net Income
(Loss)
|
|
$
|
4.4
|
|
|
$
|
(5.7)
|
|
|
$
|
10.1
|
|
|
|
177
|
%
|
Income (loss) per
basic and diluted share
|
|
$
|
0.04
|
|
|
$
|
(0.05)
|
|
|
$
|
0.09
|
|
|
|
180
|
%
|
Non-GAAP Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
164.8
|
|
|
$
|
90.1
|
|
|
$
|
74.7
|
|
|
|
83
|
%
|
Service
|
|
|
46.9
|
|
|
|
32.6
|
|
|
|
14.3
|
|
|
|
44
|
%
|
Total Net
Revenue
|
|
$
|
211.7
|
|
|
$
|
122.7
|
|
|
$
|
89.0
|
|
|
|
73
|
%
|
Gross
Margin
|
|
|
56.7
|
%
|
|
|
56.8
|
%
|
|
-10bps
|
|
|
NM
|
|
Operating
Margin
|
|
|
10.6
|
%
|
|
|
7.8
|
%
|
|
280bps
|
|
|
|
36
|
%
|
Net Income
|
|
$
|
18.6
|
|
|
$
|
7.8
|
|
|
$
|
10.8
|
|
|
|
139
|
%
|
Earnings per diluted
share
|
|
$
|
0.16
|
|
|
$
|
0.07
|
|
|
$
|
0.09
|
|
|
|
129
|
%
|
- With the adoption of new revenue recognition accounting
guidance ("ASC 606") in FY'18, we have adjusted prior periods. The
impact of these adjustments are to the balance sheet and income
statement, are noted with "as adjusted".
- Cash and investments ended the quarter at $154.1 million, an increase of $22.6 million from the prior quarter and an
increase of $50.8 million from the
prior year.
- Accounts receivable balance ending Q1 was $116.5 million, with days sales outstanding
("DSO") of 51.
- Q1 ending inventory was $58.1
million, an increase of $10.7
million from the prior quarter and an increase of
$13.4 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 second quarter of fiscal 2018 ending December 31, 2017, the Company is targeting
revenue in a range of $236.0 million to
$246.0 million. GAAP gross margin is targeted between
52.5% and 54.1% and non-GAAP gross margin is targeted between 56.9%
and 58.4%. Operating expenses are targeted to be between
$158.9 million and $162.9 million on
a GAAP basis and $117.5 million to $121.5
million on a non-GAAP basis. GAAP earnings are targeted to
be between a net loss of $40.2
million to $35.0 million or a
loss of $(0.35) to $(0.31) per basic share. Non-GAAP earnings
are targeted in a range of net income of $12.5 million to $17.0 million, or $0.10 to $0.14 per diluted share. The GAAP net
loss targets are based on 113.9 million average outstanding shares
and non-GAAP net income targets are based on an estimated 119.7
million average outstanding shares. Included in the GAAP
Guidance is a charge of $25.0 million
which was paid to Broadcom to allow Extreme to acquire the
datacenter assets directly from Brocade. This $25.0 million was included in the total purchase
consideration previously disclosed.
The following table shows the GAAP to non-GAAP reconciliation
for Q2 FY'18 guidance:
|
Gross Margin
Rate
|
|
Operating
Margin Rate
|
|
Earnings per
Share
|
|
GAAP
|
52.5% -
54.1%
|
|
(14.8)% -
(12.1)%
|
|
$(0.35)-$(0.31)
|
|
Estimated adjustments
for:
|
|
|
|
|
|
|
|
Amortization of
product intangibles
|
2.1%
|
|
3.7%
|
|
$
|
0.08
|
|
Stock based
compensation
|
0.3%
|
|
2.3%
|
|
$
|
0.05
|
|
Amortization of non
product intangibles
|
0.4%
|
|
2.3%
|
|
$
|
0.05
|
|
Acquisition and
integration costs
|
1.5%
|
|
13.0%
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
Non-GAAP
|
56.9% -
58.4%
|
|
7.2% -
9.0%
|
|
$0.10 -
$0.14
|
|
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 first fiscal quarter
results as well as the second 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 November
7, 2018. 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 #
98898524.
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,
Extreme Management Center, ExtremeWireless, ExtremeWireless WiNG,
Extreme Secure Automated Campus, ExtremeControl, ExtremeAnalytics,
and ExtremeCloud 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 and other income. 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 Brocade 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, the networking business from Avaya
and the data center switching, routing and analytics business
assets from Brocade; our ability to successfully integrate
the acquired technologies and operations from the Avaya and
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)
|
|
|
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
(As
adjusted)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
153,014
|
|
|
$
|
130,450
|
|
Accounts receivable,
net of allowance for doubtful accounts of $1,685 at September 30,
2017 and $1,190 at June 30, 2017
|
|
|
116,500
|
|
|
|
93,115
|
|
Inventories
|
|
|
58,100
|
|
|
|
47,410
|
|
Prepaid expenses and
other current assets
|
|
|
18,237
|
|
|
|
27,867
|
|
Total current
assets
|
|
|
345,851
|
|
|
|
298,842
|
|
Property and
equipment, net
|
|
|
38,627
|
|
|
|
30,240
|
|
Intangible assets,
net
|
|
|
67,328
|
|
|
|
25,337
|
|
Goodwill
|
|
|
118,554
|
|
|
|
80,216
|
|
Other
assets
|
|
|
27,524
|
|
|
|
25,065
|
|
Total
assets
|
|
$
|
597,884
|
|
|
$
|
459,700
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current portion of
long-term debt
|
|
$
|
17,863
|
|
|
$
|
12,280
|
|
Accounts
payable
|
|
|
50,567
|
|
|
|
31,587
|
|
Accrued compensation
and benefits
|
|
|
38,810
|
|
|
|
42,662
|
|
Accrued
warranty
|
|
|
13,499
|
|
|
|
10,584
|
|
Deferred revenue,
net
|
|
|
90,705
|
|
|
|
79,048
|
|
Other accrued
liabilities
|
|
|
52,335
|
|
|
|
37,044
|
|
Total current
liabilities
|
|
|
263,779
|
|
|
|
213,205
|
|
Deferred revenue,
less current portion
|
|
|
28,500
|
|
|
|
25,293
|
|
Long-term debt, less
current portion
|
|
|
149,729
|
|
|
|
80,422
|
|
Deferred income
taxes
|
|
|
7,204
|
|
|
|
6,576
|
|
Other long-term
liabilities
|
|
|
13,235
|
|
|
|
8,526
|
|
Commitments and
contingencies
|
|
|
-
|
|
|
|
-
|
|
Stockholders'
equity
|
|
|
135,437
|
|
|
|
125,678
|
|
Total liabilities and
stockholders' equity
|
|
$
|
597,884
|
|
|
$
|
459,700
|
|
EXTREME NETWORKS,
INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(In thousands, except
per share amounts)
|
(Unaudited)
|
|
|
|
|
Three Months
Ended
|
|
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
|
|
|
|
|
|
(As
adjusted)
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
164,774
|
|
|
$
|
90,093
|
|
Service
|
|
|
46,941
|
|
|
|
32,511
|
|
Total net
revenues
|
|
|
211,715
|
|
|
|
122,604
|
|
Cost of
revenues:
|
|
|
|
|
|
|
|
|
Product
|
|
|
80,045
|
|
|
|
44,249
|
|
Service
|
|
|
19,289
|
|
|
|
12,469
|
|
Total cost of
revenues
|
|
|
99,334
|
|
|
|
56,718
|
|
Gross
profit:
|
|
|
|
|
|
|
|
|
Product
|
|
|
84,729
|
|
|
|
45,844
|
|
Service
|
|
|
27,652
|
|
|
|
20,042
|
|
Total gross
profit
|
|
|
112,381
|
|
|
|
65,886
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Research and
development
|
|
|
34,285
|
|
|
|
18,299
|
|
Sales and
marketing
|
|
|
55,561
|
|
|
|
36,859
|
|
General and
administrative
|
|
|
12,185
|
|
|
|
8,287
|
|
Acquisition and
integration costs
|
|
|
4,244
|
|
|
|
2,321
|
|
Amortization of
intangibles
|
|
|
1,614
|
|
|
|
4,142
|
|
Total operating
expenses
|
|
|
107,889
|
|
|
|
69,908
|
|
Operating income
(loss)
|
|
|
4,492
|
|
|
|
(4,022)
|
|
Interest
income
|
|
|
647
|
|
|
|
57
|
|
Interest
expense
|
|
|
(2,215)
|
|
|
|
(647)
|
|
Other income
(expense), net
|
|
|
3,127
|
|
|
|
(223)
|
|
Income (loss) before
income taxes
|
|
|
6,051
|
|
|
|
(4,835)
|
|
Provision for income
taxes
|
|
|
1,675
|
|
|
|
907
|
|
Net income
(loss)
|
|
$
|
4,376
|
|
|
$
|
(5,742)
|
|
Basic and diluted net
loss per share:
|
|
|
|
|
|
|
|
|
Net income (loss) per
share - basic
|
|
$
|
0.04
|
|
|
$
|
(0.05)
|
|
Net income (loss) per
share - diluted
|
|
$
|
0.04
|
|
|
$
|
(0.05)
|
|
Shares used in per
share calculation - basic
|
|
|
112,241
|
|
|
|
105,955
|
|
Shares used in per
share calculation - diluted
|
|
|
118,431
|
|
|
|
105,955
|
|
EXTREME NETWORKS,
INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(In
thousands)
|
(Unaudited)
|
|
|
|
|
Three Months
Ended
|
|
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
Net cash provided by
operating activities
|
|
$
|
18,598
|
|
|
$
|
9,574
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(7,421)
|
|
|
|
(1,635)
|
|
Acquisitions
|
|
|
(68,047)
|
|
|
|
-
|
|
Proceeds from sale of
equity investment
|
|
|
4,922
|
|
|
|
-
|
|
Net cash used in
investing activities
|
|
|
(70,546)
|
|
|
|
(1,635)
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
Borrowings under Term
Loan
|
|
|
80,000
|
|
|
|
-
|
|
Loan fees on
borrowings
|
|
|
(1,494)
|
|
|
|
|
|
Repayments of
debt
|
|
|
(4,093)
|
|
|
|
(3,250)
|
|
Proceeds from issuance
of common stock, net of tax
|
|
|
42
|
|
|
|
3,416
|
|
Net cash provided by
financing activities
|
|
|
74,455
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
effect on cash
|
|
|
57
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
and cash equivalents
|
|
|
22,564
|
|
|
|
8,143
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period
|
|
|
130,450
|
|
|
|
94,122
|
|
Cash and cash
equivalents at end of period
|
|
$
|
153,014
|
|
|
$
|
102,265
|
|
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 acquired
intangibles and other income.
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 and other
income. 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.
Other income. Other income consists of the gain on the
sale of our equity investment in a private company.
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
percentages and per share amounts)
|
(Unaudited)
|
|
|
Non-GAAP
Revenue
|
Three Months
Ended
|
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
|
|
|
|
|
(As
adjusted)
|
|
Revenue - GAAP
Basis
|
$
|
211,715
|
|
|
$
|
122,604
|
|
Adjustments:
|
|
|
|
|
|
|
|
Purchase accounting
adjustment
|
|
-
|
|
|
|
133
|
|
Revenue - Non-GAAP
Basis
|
$
|
211,715
|
|
|
$
|
122,737
|
|
|
|
|
|
|
|
|
|
Non-GAAP Gross
Margin
|
Three Months
Ended
|
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
|
|
|
|
|
(As
adjusted)
|
|
Gross profit - GAAP
Basis
|
$
|
112,381
|
|
|
$
|
65,886
|
|
Gross margin - GAAP
Basis percentage
|
|
53.1
|
%
|
|
|
53.7
|
%
|
Adjustments:
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
225
|
|
|
|
300
|
|
Purchase accounting
adjustments
|
|
-
|
|
|
|
133
|
|
Acquired inventory
adjustments
|
|
2,938
|
|
|
|
-
|
|
Acquisition and
integration costs
|
|
1,846
|
|
|
|
-
|
|
Amortization of
intangibles
|
|
2,564
|
|
|
|
3,417
|
|
Total adjustments to
GAAP gross profit
|
$
|
7,573
|
|
|
$
|
3,850
|
|
Gross profit -
Non-GAAP
|
$
|
119,954
|
|
|
$
|
69,736
|
|
Gross margin -
Non-GAAP percentage
|
|
56.7
|
%
|
|
|
56.8
|
%
|
|
|
|
|
|
|
|
|
Non-GAAP Operating
Income
|
Three Months
Ended
|
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
|
|
|
|
|
(As
adjusted)
|
|
GAAP operating income
(loss)
|
$
|
4,492
|
|
|
$
|
(4,022)
|
|
GAAP operating income
(loss) percentage
|
|
2.1
|
%
|
|
|
(3.3)
|
%
|
Adjustments:
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
4,803
|
|
|
|
3,475
|
|
Acquisition and
integration costs
|
|
6,090
|
|
|
|
2,321
|
|
Acquired inventory
adjustments
|
|
2,938
|
|
|
|
-
|
|
Amortization of
intangibles
|
|
4,178
|
|
|
|
7,559
|
|
Purchase accounting
adjustments
|
|
-
|
|
|
|
133
|
|
Executive transition
costs
|
|
-
|
|
|
|
34
|
|
Litigation
|
|
-
|
|
|
|
27
|
|
Total adjustments to
GAAP operating income (loss)
|
$
|
18,009
|
|
|
$
|
13,549
|
|
Non-GAAP operating
income
|
$
|
22,501
|
|
|
$
|
9,527
|
|
Non-GAAP operating
income percentage
|
|
10.6
|
%
|
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
Non-GAAP Net
Income
|
Three Months
Ended
|
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
|
|
|
|
|
(As
adjusted)
|
|
GAAP net income
(loss)
|
$
|
4,376
|
|
|
$
|
(5,742)
|
|
Adjustments:
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
4,803
|
|
|
|
3,475
|
|
Acquisition and
integration costs
|
|
6,090
|
|
|
|
2,321
|
|
Amortization of
intangibles
|
|
4,178
|
|
|
|
7,559
|
|
Acquired inventory
adjustments
|
|
2,938
|
|
|
|
-
|
|
Purchase accounting
adjustments
|
|
-
|
|
|
|
133
|
|
Executive transition
costs
|
|
-
|
|
|
|
34
|
|
Litigation
|
|
-
|
|
|
|
27
|
|
Gain on sale of equity
investment
|
|
(3,757)
|
|
|
|
-
|
|
Total adjustments to
GAAP net income (loss)
|
$
|
14,252
|
|
|
$
|
13,549
|
|
Non-GAAP net
income
|
$
|
18,628
|
|
|
$
|
7,807
|
|
|
|
|
|
|
|
|
|
Earnings per
share
|
|
|
|
|
|
|
|
Non-GAAP net income
per share-diluted
|
$
|
0.16
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
Shares used in net
income per share-diluted
|
|
|
|
|
|
|
|
Non-GAAP shares
used
|
|
118,431
|
|
|
|
107,275
|
|
|
|
|
|
|
|
|
|
Free Cash
Flow
|
Three Months
Ended
|
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
|
|
|
|
|
(As
adjusted)
|
|
Cash flow provided by
operations
|
$
|
18,598
|
|
|
$
|
9,574
|
|
Less: PP&E CapEx
spending
|
|
(7,421)
|
|
|
$
|
(1,635)
|
|
Total free cash
flow
|
$
|
11,177
|
|
|
$
|
7,939
|
|
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SOURCE Extreme Networks, Inc.