SAN JOSE, Calif., Feb. 6, 2018 /PRNewswire/ -- Extreme
Networks, Inc. ("Extreme") (Nasdaq: EXTR) today released financial
results for its fiscal second quarter ended December 31,
2017.
Second Quarter Results:
- Second quarter revenue was $231.1
million, an increase of 48% year-over-year.
- GAAP gross margin for the second fiscal quarter was 55.8%, an
increase of 490 basis points year-over-year, and non-GAAP gross
margin was 59.4% year-over-year, an increase of 220 basis points
year-over-year.
- GAAP operating margin for the second fiscal quarter was (13.5)%
and non-GAAP operating margin was 8.8%, compared to (1.9)% and 11.7
%, respectively, year-over-year.
- GAAP net loss for the second fiscal quarter was $31.9 million, or $0.28 per basic share. Non-GAAP net income was
$16.4 million, or $0.14 per diluted share, a decrease of
$0.7 million and $0.02, respectively, year-over-year.
"We delivered solid performance in the second fiscal quarter
highlighted by revenue growth, gross margin expansion and solid
execution of our integration initiatives associated with our newly
acquired assets," stated Ed
Meyercord, President and CEO of Extreme Networks.
"I am especially pleased with our non-GAAP gross margin
performance in the quarter, which is close to exceeding our
near-term goal of 60%," continued Meyercord. "We turned away
a significant volume of low margin business this quarter in favor
of higher quality, solutions-driven sales that drove our non-GAAP
gross margin improvement for the twelfth consecutive quarter. We
expect to see continued improvement in gross margins in the second
half of our fiscal year in addition to significant sequential
quarterly growth."
"Our recent acquisitions have meaningfully strengthened our
brand, our competitive position and our technology differentiation
in the market. We are seeing significant growth in our pipeline,
which includes many cross-selling opportunities. Our March quarter
will be the first quarter of fully consolidated operations and we
expect to deliver year-over-year organic growth in our core Extreme
business, meeting or exceeding our annual target of $430 million of newly acquired revenue which is
evident in our guidance," Meyercord added.
Finally, Meyercord added, "We successfully completed the
migration of the data and IT systems of the acquired assets from
Brocade into Extreme as planned on January
15th and we are on track to migrate the data and systems of
the Avaya assets in early April. Our teams have done an outstanding
job driving our business while managing these large and complex
integration initiatives."
Recent Key Events:
- St John's Hotel is a luxury hotel with 1,091 guest rooms
located in Pyeongchang, South
Korea, the host city for the 2018 Winter Olympics. The
newly-opened hotel will accommodate International Olympic Committee
members during the upcoming Games. Extreme solved their need for
secure and reliable, easy-to-manage wired and wireless unified
access for guest rooms and indoor/outdoor venues highlighted by our
feature-rich Extreme Management Center software that provides
complete visibility, control and analytics of the entire networking
infrastructure environment.
- SK Telecom is the largest mobile service provider in
South Korea with 50+ million
subscribers. They originally preferred our largest competitor, but
ultimately decided on Extreme's switches for their core and
top-of-rack at their Boramae Data Center. Their confidence that
Extreme delivers the best products, support, and long-term ROI led
to their decision.
- Ultravision is a service provider in Mexico that offers TV, TV on Demand, Internet,
and Voice over LTE. Ultravision chose Extreme for the automation,
traffic flow visibility, and competitive pricing. The IP/MPLS
transport and core network consists of integrated technologies with
the Summit Series from Extreme and newly acquired datacenter assets
including the SLX, MLX and VDX switching and routing families along
with Flow Optimizer for threat mitigation, Workflow Composer for
high automation capabilities, and Extreme Management Center for
their next phase network management.
- Extreme Networks was named the Official Wi-Fi Analytics
Provider of Super Bowl LII by the NFL for the 5th
consecutive year. To maximize network visibility and the fan
experience, Extreme deployed its cloud-based ExtremeAnalytics™
solution during this year's Super Bowl at Minneapolis' U.S. Bank Stadium. Our analytics
solution delivers actionable, real-time insight into how fans use
apps, video, social media and images throughout the game. Extreme
has, this past season, delivered high-density Wi-Fi solutions to
10 NFL teams and insightful Wi-Fi analytics to an
additional 12 NFL teams.
Fiscal Q2 2018 Financial Metrics:
(in millions, except percentages ad per share information)
|
|
Q2
FY'18
|
|
Q2
FY'17
|
|
Change
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
GAAP Results of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
174.8
|
|
$
|
118.1
|
|
$
|
56.7
|
|
48%
|
Service
|
|
|
56.3
|
|
|
38.3
|
|
|
18.0
|
|
47%
|
Total Net
Revenue
|
|
$
|
231.1
|
|
$
|
156.4
|
|
$
|
74.7
|
|
48%
|
Gross
Margin
|
|
|
55.8%
|
|
|
50.9%
|
|
490bps
|
|
10%
|
Operating
Margin
|
|
|
(13.5)%
|
|
|
(1.9)%
|
|
-1156bps
|
|
(608)%
|
Net Loss
|
|
$
|
(31.9)
|
|
$
|
(4.2)
|
|
$
|
(27.7)
|
|
(660)%
|
Loss per basic and
diluted share
|
|
$
|
(0.28)
|
|
$
|
(0.04)
|
|
$
|
(0.24)
|
|
(600)%
|
Non-GAAP Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
174.8
|
|
$
|
118.1
|
|
$
|
56.7
|
|
48%
|
Service
|
|
|
56.3
|
|
|
38.3
|
|
|
18.0
|
|
47%
|
Total Net
Revenue
|
|
$
|
231.1
|
|
$
|
156.4
|
|
$
|
74.7
|
|
48%
|
Gross
Margin
|
|
|
59.4%
|
|
|
57.2%
|
|
220bps
|
|
4%
|
Operating
Margin
|
|
|
8.8%
|
|
|
11.7%
|
|
290bps
|
|
(25)%
|
Net Income
|
|
$
|
16.4
|
|
$
|
17.1
|
|
$
|
(0.7)
|
|
(4)%
|
Earnings per diluted
share
|
|
$
|
0.14
|
|
$
|
0.16
|
|
$
|
(0.02)
|
|
(13)%
|
- With the adoption of new revenue recognition accounting
guidance ("ASC 606") in FY'18, we have adjusted prior periods. The
impact of these adjustments to the balance sheet and income
statement, are noted with "as adjusted".
- Cash and investments ended the quarter at $128.2 million, a decrease of $25.9 million from Q1 and an increase of
$24.4 million from Q2 last year.
- Accounts receivable balance ending Q2 was $154.9 million, with days sales outstanding
("DSO") of 62.
- Q2 ending inventory was $83.4
million, an increase of $25.3
million from the prior quarter and an increase of
$34.0 million from Q2 last year.
- Q2 ending debt was $183.1
million, an increase of $15.5
million from Q1, driven primarily by borrowings to fund
Extreme's acquisition of Brocade's Data Center business and an
increase of $86.0 million from Q2
last year, driven primarily by borrowings to fund Extreme's
acquisitions of Avaya's Campus Fabric business and Brocade's Data
Center business.
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 third quarter of fiscal 2018, ending March 31, 2018, the Company is targeting revenue
in a range of $262.0 million to
$272.0 million. GAAP gross
margin is targeted between 56.1% and 58.4% and non-GAAP gross
margin is targeted between 58.9% and 61.1%. Operating expenses are
targeted to be between $153.5 million
and $156.5 million on a GAAP basis
and $130.0 million to $133.0 million on a non-GAAP basis. GAAP earnings
are targeted to be between a net loss of $1.6 million to $10.4
million or a loss of $(0.01)
to $(0.09) per basic share.
Non-GAAP earnings are targeted in a range of net income of
$20.4 million to $29.2 million, or $0.17 to $0.24 per
diluted share. The GAAP net loss targets are based on 114.8 million
average outstanding shares and non-GAAP net income targets are
based on an estimated 120.3 million average outstanding shares.
The following table shows the GAAP to non-GAAP reconciliation
for Q3 FY'18 guidance:
|
Gross Margin
Rate
|
|
Operating
Margin Rate
|
|
Earnings per
Share
|
GAAP
|
56.1% -
58.4%
|
|
(2.5)% -
0.8%
|
|
$(0.09)-$(0.01)
|
Estimated adjustments
for:
|
|
|
|
|
|
|
|
|
Amortization of
product intangibles
|
1.7%
|
|
0.6%
|
|
$
|
0.01
|
Stock based
compensation
|
0.2%
|
|
3.2%
|
|
$
|
0.07
|
Inventory
adjustments
|
0.4%
|
|
0.4%
|
|
$
|
0.01
|
Amortization of non
product intangibles
|
-
|
|
1.7%
|
|
$
|
0.04
|
Restructuring
charges, net
|
-
|
|
1.6%
|
|
$
|
0.04
|
Acquisition and
integration costs
|
0.5%
|
|
4.1%
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
Non-GAAP
|
58.9% -
61.1%
|
|
9.2% -
12.2%
|
|
$0.17 -
$0.24
|
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 5:00 p.m. Eastern (2:00
p.m. Pacific) today to review the Second fiscal quarter
results as well as the third fiscal quarter ended March 31,
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
February 6, 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 # 3459947.
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 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, other
income and income tax. 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 acquisitions with
Avaya and Brocade, the status of the integration of the acquired
technologies and operations from the Avaya and Brocade assets into
our business and operations 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 Zebra, 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)
|
|
|
|
|
|
|
|
|
|
December 31,
2017
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
(As
adjusted)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
127,108
|
|
|
$
|
130,450
|
|
Accounts receivable,
net of allowance for doubtful accounts of $1,382 at December 31,
2017 and $1,190 at June 30, 2017
|
|
|
154,906
|
|
|
|
93,115
|
|
Inventories
|
|
|
83,377
|
|
|
|
47,410
|
|
Prepaid expenses and
other current assets
|
|
|
24,772
|
|
|
|
27,867
|
|
Total current
assets
|
|
|
390,163
|
|
|
|
298,842
|
|
Property and
equipment, net
|
|
|
68,565
|
|
|
|
30,240
|
|
Intangible assets,
net
|
|
|
92,925
|
|
|
|
25,337
|
|
Goodwill
|
|
|
130,988
|
|
|
|
80,216
|
|
Other
assets
|
|
|
44,267
|
|
|
|
25,065
|
|
Total
assets
|
|
$
|
726,908
|
|
|
$
|
459,700
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current portion of
long-term debt
|
|
$
|
22,426
|
|
|
$
|
12,280
|
|
Accounts
payable
|
|
|
73,553
|
|
|
|
31,587
|
|
Accrued compensation
and benefits
|
|
|
49,104
|
|
|
|
42,662
|
|
Accrued
warranty
|
|
|
13,010
|
|
|
|
10,584
|
|
Deferred revenue,
net
|
|
|
113,664
|
|
|
|
79,048
|
|
Other accrued
liabilities
|
|
|
74,517
|
|
|
|
37,044
|
|
Total current
liabilities
|
|
|
346,272
|
|
|
|
213,205
|
|
Deferred revenue,
less current portion
|
|
|
38,693
|
|
|
|
25,293
|
|
Long-term debt, less
current portion
|
|
|
160,712
|
|
|
|
80,422
|
|
Deferred income
taxes
|
|
|
5,163
|
|
|
|
6,576
|
|
Other long-term
liabilities
|
|
|
64,347
|
|
|
|
8,526
|
|
Commitments and
contingencies
|
|
|
—
|
|
|
|
—
|
|
Stockholders'
equity
|
|
|
111,719
|
|
|
|
125,678
|
|
Total liabilities and
stockholders' equity
|
|
$
|
726,908
|
|
|
$
|
459,700
|
|
EXTREME NETWORKS,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except
per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
|
(As
adjusted)
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
174,850
|
|
|
$
|
118,055
|
|
|
$
|
339,624
|
|
|
$
|
208,148
|
|
Service
|
|
|
56,273
|
|
|
|
38,322
|
|
|
|
103,214
|
|
|
|
70,833
|
|
Total net
revenues
|
|
|
231,123
|
|
|
|
156,377
|
|
|
|
442,838
|
|
|
|
278,981
|
|
Cost of
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
78,472
|
|
|
|
62,627
|
|
|
|
158,517
|
|
|
|
106,876
|
|
Service
|
|
|
23,665
|
|
|
|
14,098
|
|
|
|
42,954
|
|
|
|
26,567
|
|
Total cost of
revenues
|
|
|
102,137
|
|
|
|
76,725
|
|
|
|
201,471
|
|
|
|
133,443
|
|
Gross
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
96,378
|
|
|
|
55,428
|
|
|
|
181,107
|
|
|
|
101,272
|
|
Service
|
|
|
32,608
|
|
|
|
24,224
|
|
|
|
60,260
|
|
|
|
44,266
|
|
Total gross
profit
|
|
|
128,986
|
|
|
|
79,652
|
|
|
|
241,367
|
|
|
|
145,538
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
|
45,907
|
|
|
|
24,013
|
|
|
|
80,192
|
|
|
|
42,312
|
|
Sales and
marketing
|
|
|
65,659
|
|
|
|
41,025
|
|
|
|
121,220
|
|
|
|
77,884
|
|
General and
administrative
|
|
|
11,669
|
|
|
|
9,397
|
|
|
|
23,854
|
|
|
|
17,684
|
|
Acquisition and
integration costs, net of bargain purchase gain
|
|
|
34,115
|
|
|
|
4,169
|
|
|
|
38,359
|
|
|
|
6,490
|
|
Restructuring and
related charges, net of reversals
|
|
|
—
|
|
|
|
1,853
|
|
|
|
—
|
|
|
|
1,853
|
|
Amortization of
intangibles
|
|
|
2,746
|
|
|
|
2,175
|
|
|
|
4,360
|
|
|
|
6,317
|
|
Total operating
expenses
|
|
|
160,096
|
|
|
|
82,632
|
|
|
|
267,985
|
|
|
|
152,540
|
|
Operating
loss
|
|
|
(31,110)
|
|
|
|
(2,980)
|
|
|
|
(26,618)
|
|
|
|
(7,002)
|
|
Interest
income
|
|
|
717
|
|
|
|
81
|
|
|
|
1,364
|
|
|
|
138
|
|
Interest
expense
|
|
|
(2,504)
|
|
|
|
(1,176)
|
|
|
|
(4,719)
|
|
|
|
(1,823)
|
|
Other income
(expense), net
|
|
|
(643)
|
|
|
|
1,025
|
|
|
|
2,484
|
|
|
|
802
|
|
Loss before income
taxes
|
|
|
(33,540)
|
|
|
|
(3,050)
|
|
|
|
(27,489)
|
|
|
|
(7,885)
|
|
Provision (benefit)
for income taxes
|
|
|
(1,617)
|
|
|
|
1,179
|
|
|
|
58
|
|
|
|
2,086
|
|
Net loss
|
|
$
|
(31,923)
|
|
|
$
|
(4,229)
|
|
|
$
|
(27,547)
|
|
|
$
|
(9,971)
|
|
Basic and diluted net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share -
basic
|
|
$
|
(0.28)
|
|
|
$
|
(0.04)
|
|
|
$
|
(0.24)
|
|
|
$
|
(0.09)
|
|
Net loss per share -
diluted
|
|
$
|
(0.28)
|
|
|
$
|
(0.04)
|
|
|
$
|
(0.24)
|
|
|
$
|
(0.09)
|
|
Shares used in per
share calculation - basic
|
|
|
113,621
|
|
|
|
107,425
|
|
|
|
112,931
|
|
|
|
106,690
|
|
Shares used in per
share calculation - diluted
|
|
|
113,621
|
|
|
|
107,425
|
|
|
|
112,931
|
|
|
|
106,690
|
|
EXTREME NETWORKS,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
|
|
|
|
|
|
Six Months
Ended
|
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Net cash provided by
operating activities
|
|
$
|
14,248
|
|
|
$
|
19,288
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(13,309)
|
|
|
|
(4,662)
|
|
Acquisitions
|
|
|
(97,581)
|
|
|
|
(51,088)
|
|
Proceeds from sale of
non-marketable equity investment
|
|
|
4,922
|
|
|
|
—
|
|
Net cash used in
investing activities
|
|
|
(105,968)
|
|
|
|
(55,750)
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
Borrowings under Term
Loan
|
|
|
100,000
|
|
|
|
48,250
|
|
Loan fees on
borrowings
|
|
|
(1,494)
|
|
|
|
(1,327)
|
|
Repayments of
debt
|
|
|
(8,686)
|
|
|
|
(5,513)
|
|
Proceeds from issuance
of common stock, net of tax withholding
|
|
|
(1,536)
|
|
|
|
4,831
|
|
Net cash provided by
financing activities
|
|
|
88,284
|
|
|
|
46,241
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
effect on cash
|
|
|
94
|
|
|
|
(115)
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)
increase in cash and cash equivalents
|
|
|
(3,342)
|
|
|
|
9,664
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period
|
|
|
130,450
|
|
|
|
94,122
|
|
Cash and cash
equivalents at end of period
|
|
$
|
127,108
|
|
|
$
|
103,786
|
|
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, restructuring charges, executive
transition costs, litigation, amortization of acquired intangibles,
restructuring expenses, executive transition expenses, litigation
expenses, other income and income tax.
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 to 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
charges, executive transition costs, litigation, other income and
income tax. 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 Campus Fabric
business, 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 consists of severance and termination benefits and legal
transition cash transactions. The expenses are incurred
through execution of pre-established employment contracts with
senior executives.
Litigation expenses. Litigation expenses consist of legal
and professional fees and expenses related to our on-going ligation matter.
Other income. Other income consists of the gain on the
sale of our equity investment in a private company.
Income tax. Income tax adjustments relate to
the tax impact of reducing the US tax rate applied to deferred tax
items pursuant to the recently enacted US tax legislation as well
as the tax benefit resulting from the impairment of a lease
acquired from Avaya in Canada.
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
|
|
|
Six Months
Ended
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
|
(As
adjusted)
|
|
Revenue - GAAP
Basis
|
$
|
231,123
|
|
|
$
|
156,377
|
|
|
$
|
442,838
|
|
|
$
|
278,981
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting
adjustment
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133
|
|
Revenue - Non-GAAP
Basis
|
$
|
231,123
|
|
|
$
|
156,377
|
|
|
$
|
442,838
|
|
|
$
|
279,114
|
|
Non-GAAP Gross
Margin
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
|
(As
adjusted)
|
|
Gross profit - GAAP
Basis
|
$
|
128,986
|
|
|
$
|
79,652
|
|
|
$
|
241,367
|
|
|
$
|
145,538
|
|
Gross margin - GAAP
Basis percentage
|
|
55.8%
|
|
|
|
50.9%
|
|
|
|
54.5%
|
|
|
|
52.2%
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
430
|
|
|
|
308
|
|
|
|
655
|
|
|
|
608
|
|
Purchase accounting
adjustments
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133
|
|
Acquired inventory
adjustments
|
|
1,249
|
|
|
|
2,300
|
|
|
|
4,187
|
|
|
|
2,300
|
|
Acquisition and
integration costs
|
|
2,672
|
|
|
|
5,517
|
|
|
|
4,518
|
|
|
|
5,517
|
|
Amortization of
intangibles
|
|
3,964
|
|
|
|
1,719
|
|
|
|
6,528
|
|
|
|
5,136
|
|
Total adjustments to
GAAP gross profit
|
$
|
8,315
|
|
|
$
|
9,844
|
|
|
$
|
15,888
|
|
|
$
|
13,694
|
|
Gross profit -
Non-GAAP
|
$
|
137,301
|
|
|
$
|
89,496
|
|
|
$
|
257,255
|
|
|
$
|
159,232
|
|
Gross margin -
Non-GAAP percentage
|
|
59.4%
|
|
|
|
57.2%
|
|
|
|
58.1%
|
|
|
|
57.0%
|
|
Non-GAAP Operating
Income
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
|
(As
adjusted)
|
|
GAAP operating income
(loss)
|
$
|
(31,110)
|
|
|
$
|
(2,980)
|
|
|
$
|
(26,618)
|
|
|
$
|
(7,002)
|
|
GAAP operating income
(loss) percentage
|
|
(13.5)%
|
|
|
|
(1.9)%
|
|
|
|
(6.0)%
|
|
|
|
(2.5)%
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
7,025
|
|
|
|
3,381
|
|
|
|
11,828
|
|
|
|
6,856
|
|
Acquisition and
integration costs, net of bargain purchase gain
|
|
36,787
|
|
|
|
9,686
|
|
|
|
42,877
|
|
|
|
12,007
|
|
Restructuring charge,
net of reversal
|
|
—
|
|
|
|
1,853
|
|
|
|
—
|
|
|
|
1,853
|
|
Acquired inventory
adjustments
|
|
1,249
|
|
|
|
2,300
|
|
|
|
4,187
|
|
|
|
2,300
|
|
Amortization of
intangibles
|
|
6,710
|
|
|
|
3,894
|
|
|
|
10,888
|
|
|
|
11,453
|
|
Purchase accounting
adjustments
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133
|
|
Executive transition
costs
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
Litigation
|
|
(365)
|
|
|
|
236
|
|
|
|
(365)
|
|
|
|
263
|
|
Total adjustments to
GAAP operating income
|
$
|
51,406
|
|
|
$
|
21,350
|
|
|
$
|
69,415
|
|
|
$
|
34,899
|
|
Non-GAAP operating
income
|
$
|
20,296
|
|
|
$
|
18,370
|
|
|
$
|
42,797
|
|
|
$
|
27,897
|
|
Non-GAAP operating
income percentage
|
|
8.8%
|
|
|
|
11.7%
|
|
|
|
9.7%
|
|
|
|
10.0%
|
|
Non-GAAP Net
Income
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
|
(As
adjusted)
|
|
GAAP net
loss
|
$
|
(31,923)
|
|
|
$
|
(4,229)
|
|
|
$
|
(27,547)
|
|
|
$
|
(9,971)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
7,025
|
|
|
|
3,381
|
|
|
|
11,828
|
|
|
|
6,856
|
|
Acquisition and
integration costs, net of bargain purchase gain
|
|
36,787
|
|
|
|
9,686
|
|
|
|
42,877
|
|
|
|
12,007
|
|
Restructuring charge,
net of reversal
|
|
—
|
|
|
|
1,853
|
|
|
|
—
|
|
|
|
1,853
|
|
Acquired inventory
adjustments
|
|
1,249
|
|
|
|
2,300
|
|
|
|
4,187
|
|
|
|
2,300
|
|
Amortization of
intangibles
|
|
6,710
|
|
|
|
3,894
|
|
|
|
10,888
|
|
|
|
11,453
|
|
Purchase accounting
adjustments
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133
|
|
Executive transition
costs
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
Litigation
|
|
(365)
|
|
|
|
236
|
|
|
|
(365)
|
|
|
|
263
|
|
Gain on sale of
non-marketable equity investment
|
|
—
|
|
|
|
—
|
|
|
|
(3,757)
|
|
|
|
—
|
|
Income tax
|
|
(3,102)
|
|
|
|
—
|
|
|
|
(3,102)
|
|
|
|
—
|
|
Total adjustments to
GAAP net loss
|
$
|
48,304
|
|
|
$
|
21,350
|
|
|
$
|
62,556
|
|
|
$
|
34,899
|
|
Non-GAAP net
income
|
$
|
16,381
|
|
|
$
|
17,121
|
|
|
$
|
35,009
|
|
|
$
|
24,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income
per share-diluted
|
$
|
0.14
|
|
|
$
|
0.16
|
|
|
$
|
0.29
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net
income per share-diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP shares
used
|
|
119,646
|
|
|
|
110,152
|
|
|
|
119,038
|
|
|
|
109,394
|
|
Free Cash
Flow
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Cash flow (used in)
provided by operations
|
$
|
(4,350)
|
|
|
$
|
9,714
|
|
|
$
|
14,248
|
|
|
$
|
19,288
|
|
Less: PP&E CapEx
spending
|
|
(5,888)
|
|
|
|
(3,027)
|
|
|
|
(13,309)
|
|
|
|
(4,662)
|
|
Total free cash
flow
|
$
|
(10,238)
|
|
|
$
|
6,687
|
|
|
$
|
939
|
|
|
$
|
14,626
|
|
View original content with
multimedia:http://www.prnewswire.com/news-releases/extreme-networks-reports-second-quarter-fiscal-year-2018-financial-results-300594535.html
SOURCE Extreme Networks, Inc.