SAN JOSE, Calif., May 8, 2018 /PRNewswire/ -- Extreme
Networks, Inc. ("Extreme") (Nasdaq: EXTR) today released financial
results for its fiscal third quarter ended March 31, 2018.
Third Quarter Results:
- Third quarter revenue was $262.0
million, an increase of 76% year-over-year.
- GAAP gross margin for the third fiscal quarter was 54.6%, a
decrease of 90 basis points year-over-year, and non-GAAP gross
margin was 57.9% year-over-year, an increase of 70 basis points
year-over-year.
- GAAP operating margin for the third fiscal quarter was (3.1) %
and non-GAAP operating margin was 9.3%, compared to (1.8) % and
9.8% , respectively, year-over-year.
- GAAP net loss for the third fiscal quarter was $13.6 million, or $0.12 per basic share, a decrease of $8.6 million and $0.07 per basic share, respectively,
year-over-year. Non-GAAP net income was $19.0 million, or $0.16 per diluted share, an increase of
$6.8 million and $0.05 per diluted share, respectively,
year-over-year.
"We made significant progress continuing to build the 'new' Extreme in the third fiscal quarter
with year-over-year revenue growth and non-GAAP gross margin improvement, hitting all
of our critical milestones associated with the systems integration
of our newly acquired assets," stated Ed
Meyercord, President and CEO of Extreme Networks.
"We achieved organic growth of 8% in core Extreme revenue,
driven by strength in our wireless business, and 10% sequential
growth in our acquired Campus Fabric revenue. Given strong demand,
we built our order backlog by over $7M during the quarter. We expect improvement in
our gross margins in our last fiscal quarter of 2018 as we continue
to approach our 60% target, in
addition to significant sequential and year-over-year quarterly
revenue growth."
"On January
15th, we
successfully completed the migration of the data and IT systems of
the acquired Data Center assets and on April
9th, we completed a similar migration of the
acquired Campus Fabric assets. The migration was on schedule with
orders being booked, billed, and shipped on the first day of the
cut-over. And we relocated approximately 265 employees into
our newly renovated San Jose
campus as planned on April
30th. This completed our IT integration efforts
following our recent acquisitions and we are now tracking and
operating in one instance of our ERP system and procurement
systems. Our teams have done an outstanding job driving our
business while managing these large and complex integration
initiatives."
Meyercord added, "Finally, our recent acquisitions
are meaningfully strengthening our brand, our competitive position
and our technology differentiation in the market evidenced by
significant growth in our pipeline, which includes many
cross-selling opportunities. In our fourth fiscal quarter, we
expect to deliver continued year-over-year organic growth in our
core Extreme business with less seasonality in our fourth fiscal
quarter than prior years due to revenue trends from our acquired
assets. After reviewing our pipeline we anticipate we will
remain on track to meet or exceed our annual target of $430 million of newly acquired revenue from our
recent acquisitions. Looking out into fiscal 2019, we remain
on track to grow revenue 3 to 5% in the combined portfolio as
compared to our second-half 2018 run-rate."
Recent Key Highlights:
- Concord Hospital, a large regional hospital
system, serves half a million patients and over 5,000 network users
across 30 locations. Concord
deployed Extreme Fabric
Connect™ to achieve the self-networking benefits of MPLS without
the cost and complexity. Extreme's Fabric Connect gives
Concord the ability to secure and
protect sensitive data with network segmentation and run as many as
3,000 IoT devices on the network at any one time.
- MetLife Stadium, part of the
Meadowlands Sports Complex, serves as the home stadium for two
National Football League (NFL) franchises: the New York Giants and
the New York Jets, with a capacity of 82,500 seats. Metlife
deployed ExtremeSwitching™
platforms running the ExtremeXOS®
Operating System with Extreme Management Center™ (XMC) and ExtremeAnalytics™ to support an upgraded audio network and
additional services. Extreme's switches continue to support
third party technologies such as
Wi-Fi, VoIP, and distributed video
and content.
- Oral Roberts University, a
leading college in Tulsa,
Oklahoma, relies on Extreme Networks solutions to power extraordinary,
campus-wide mobile experiences for
students, faculty and staff.
Exceptional service is ensured via the use of ExtremeAnalytics™,
which allows network managers to see campus-wide traffic patterns,
dwell times and more, via a single dashboard, and make adjustments
in real-time. ORU has leveraged Extreme solutions to offer
cutting-edge digital learning initiatives and enhanced social media and cultural
experiences since 2017. Since then,
the University has accepted seven awards for technology
design and effectiveness, including the Campus Technology 2017
Impact Award and 2018 Ellucian Technology Award for Global
Impact.
- Extreme Networks introduced ExtremeLocation™, a solution
that allows retailers to identify, engage and provide personalized
guest experiences in-store via shoppers' mobile devices. This
offering brings a new level of insight to retail customers by
collecting contextual analytics from both Wi-Fi and BLE beacon
technology.
- Extreme Networks completed its Extreme Now world tour
bringing its leadership team directly to customers in 55 cities in
22 countries. The Now tour culminated in Extreme's global user
conference, Extreme Connect, held in Scottsdale, Arizona in late April. At Connect,
over 350 customers and partners across industries became Extreme
Networks Certified Insider community members, networked with peers,
and received technical training across Extreme's edge, campus and
data center solutions portfolio.
- On May 1, 2018, Extreme Networks,
Inc. entered into a Credit Agreement that provides for a
$40 million, five-year revolving credit facility and a
$190 million, five-year term loan. On May 1, 2018, the Company borrowed approximately
$200 million under the Senior Secured
Credit Facilities in order to pay off existing debt and for general
corporate purposes and to refinance at a 1.0% lower rate. The
Senior Secured Credit Facilities will bear interest, as of
May 1, 2018, at a rate per annum
equal to LIBOR plus 1.50% to 2.75%, or the adjusted base rate plus
0.50% to 1.75%, based on the Company's Consolidated Leverage
Ratio.
Fiscal Q3 2018 Financial Metrics:
(in millions, except percentages ad per share information)
|
|
Q3
FY'18
|
|
Q3
FY'17
|
|
Change
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
|
|
GAAP Results of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
203.5
|
|
$
|
111.3
|
|
$
|
92.2
|
|
|
83%
|
|
Service
|
|
|
58.5
|
|
|
37.9
|
|
|
20.6
|
|
|
54%
|
|
Total Net
Revenue
|
|
$
|
262.0
|
|
$
|
149.2
|
|
$
|
112.8
|
|
|
76%
|
|
Gross
Margin
|
|
|
54.6%
|
|
|
55.5%
|
|
-90 bps
|
|
|
(2)%
|
|
Operating
Margin
|
|
|
(3.1)%
|
|
|
(1.8)%
|
|
-134 bps
|
|
|
(74)%
|
|
Net Loss
|
|
$
|
(13.6)
|
|
$
|
(5.0)
|
|
$
|
(8.6)
|
|
|
(172)%
|
|
Loss per basic and
diluted share
|
|
$
|
(0.12)
|
|
$
|
(0.05)
|
|
$
|
(0.07)
|
|
|
(140)%
|
|
Non-GAAP Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
203.5
|
|
$
|
111.3
|
|
$
|
92.2
|
|
|
83%
|
|
Service
|
|
|
58.5
|
|
|
37.9
|
|
|
20.6
|
|
|
54%
|
|
Total Net
Revenue
|
|
$
|
262.0
|
|
$
|
149.2
|
|
$
|
112.8
|
|
|
76%
|
|
Gross
Margin
|
|
|
57.9%
|
|
|
57.2%
|
|
70 bps
|
|
|
1%
|
|
Operating
Margin
|
|
|
9.3%
|
|
|
9.8%
|
|
-50 bps
|
|
|
(5)%
|
|
Net Income
|
|
$
|
19.0
|
|
$
|
12.2
|
|
$
|
6.8
|
|
|
55%
|
|
Earnings per diluted
share
|
|
$
|
0.16
|
|
$
|
0.11
|
|
$
|
0.05
|
|
|
45%
|
|
- With the adoption of new revenue recognition accounting
guidance ("ASC 606") since July 1,
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 $105.3 million, a decrease of $22.9 million from Q2 and a decrease of
$12.0 million from Q3 last year,
driven primarily by the funding of the acquisition of the Campus
Fabric and Data Center businesses.
- Accounts receivable balance ending Q3 was $188.4 million, with days sales outstanding
("DSO") of 65.
- Q3 ending inventory was $77.8
million, a decrease of $5.6
million from the prior quarter and an increase of
$28.1 million from Q3 last year.
- Q3 ending debt was $178.7
million, a decrease of $4.5
million from Q2 and an increase of $83.8 million from Q3 last year, driven primarily
by borrowings to fund Extreme's acquisitions of the Campus Fabric
and Data Center businesses.
Business Outlook:
Extreme's Business Outlook is based on current
expectations. The following statements are forward-looking,
and actual results could differ materially based on market
conditions and the factors set forth under "Forward-Looking
Statements" below.
For its fourth quarter of fiscal 2018, ending June 30, 2018, the Company is targeting revenue
in a range of $277.0 million to
$287.0 million. GAAP gross
margin is targeted between 56.0% and 58.1% and non-GAAP gross
margin is targeted between 58.0% and 60.0%. Operating expenses are
targeted to be between $148.6 million
and $152.2 million on a GAAP basis
and $136.5 million to $139.5 million on a non-GAAP basis. GAAP earnings
are targeted to be between net income of $1.5 million to $9.6
million or a net income of $0.01 to $0.08 per
diluted share. Non-GAAP earnings are targeted in a range of
net income of $19.2 million to
$27.9 million, or $0.16 to $0.23 per
diluted share. The GAAP and non-GAAP per share targets are based on
121.5 million average outstanding shares.
The following table shows the GAAP to non-GAAP reconciliation
for Q4 FY'18 guidance:
|
Gross
Margin
Rate
|
|
|
Operating
Margin Rate
|
|
|
Earnings per
Share
|
|
GAAP
|
56.0% -
58.1%
|
|
|
2.3% -
5.1%
|
|
|
$0.01-$0.08
|
|
Estimated adjustments
for:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
product intangibles
|
1.7%
|
|
|
1.7%
|
|
|
$
|
0.04
|
|
Stock based
compensation
|
0.2%
|
|
|
2.9%
|
|
|
$
|
0.07
|
|
Amortization of non
product intangibles
|
-
|
|
|
0.6%
|
|
|
$
|
0.01
|
|
Acquisition and
integration costs
|
0.1%
|
|
|
1.2%
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
|
58.0% -
60.0%
|
|
|
8.7% -
11.4%
|
|
|
$0.16 -
$0.23
|
|
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 third fiscal quarter
results as well as the fourth fiscal quarter ended June 30,
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
May 7, 2019. The conference
call may also be heard by dialing 1(877) 303-9826 or
international 1 (224) 357-2194. Supplemental financial information
to be discussed during the conference call will be posted in the
Investor Relations section of the Company's website
www.extremenetworks.com including the non-GAAP reconciliation
attached to this press release. The encore recording can be
accessed by dialing 1 (855) 859-2056 or international 1 (404)
537-3406 Conference ID # 7777378.
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 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 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)
|
|
|
|
March 31,
2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
(As
adjusted)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
103,177
|
|
|
$
|
130,450
|
|
Accounts receivable,
net of allowance for doubtful accounts of $1,796 at March 31, 2018
and $1,190 at June 30, 2017
|
|
|
188,408
|
|
|
|
93,115
|
|
Inventories
|
|
|
77,756
|
|
|
|
47,410
|
|
Prepaid expenses and
other current assets
|
|
|
26,659
|
|
|
|
27,867
|
|
Total current
assets
|
|
|
396,000
|
|
|
|
298,842
|
|
Property and
equipment, net
|
|
|
86,487
|
|
|
|
30,240
|
|
Intangible assets,
net
|
|
|
85,406
|
|
|
|
25,337
|
|
Goodwill
|
|
|
129,244
|
|
|
|
80,216
|
|
Other
assets
|
|
|
43,348
|
|
|
|
25,065
|
|
Total
assets
|
|
$
|
740,485
|
|
|
$
|
459,700
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current portion of
long-term debt
|
|
$
|
24,720
|
|
|
$
|
12,280
|
|
Accounts
payable
|
|
|
90,800
|
|
|
|
31,587
|
|
Accrued compensation
and benefits
|
|
|
40,591
|
|
|
|
42,662
|
|
Accrued
warranty
|
|
|
12,812
|
|
|
|
10,584
|
|
Deferred revenue,
net
|
|
|
117,741
|
|
|
|
79,048
|
|
Other accrued
liabilities
|
|
|
77,042
|
|
|
|
37,044
|
|
Total current
liabilities
|
|
|
363,706
|
|
|
|
213,205
|
|
Deferred revenue,
less current portion
|
|
|
38,828
|
|
|
|
25,293
|
|
Long-term debt, less
current portion
|
|
|
153,958
|
|
|
|
80,422
|
|
Deferred income
taxes
|
|
|
5,628
|
|
|
|
6,576
|
|
Other long-term
liabilities
|
|
|
65,440
|
|
|
|
8,526
|
|
Commitments and
contingencies
|
|
|
—
|
|
|
|
—
|
|
Stockholders'
equity
|
|
|
112,925
|
|
|
|
125,678
|
|
Total liabilities and
stockholders' equity
|
|
$
|
740,485
|
|
|
$
|
459,700
|
|
EXTREME NETWORKS,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except
per share amounts)
(Unaudited)
|
|
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
|
(As
adjusted)
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
203,527
|
|
|
$
|
111,321
|
|
|
$
|
543,151
|
|
|
$
|
319,469
|
|
Service
|
|
|
58,477
|
|
|
|
37,875
|
|
|
|
161,691
|
|
|
|
108,708
|
|
Total net
revenues
|
|
|
262,004
|
|
|
|
149,196
|
|
|
|
704,842
|
|
|
|
428,177
|
|
Cost of
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
94,485
|
|
|
|
52,275
|
|
|
|
253,002
|
|
|
|
159,151
|
|
Service
|
|
|
24,536
|
|
|
|
14,117
|
|
|
|
67,490
|
|
|
|
40,684
|
|
Total cost of
revenues
|
|
|
119,021
|
|
|
|
66,392
|
|
|
|
320,492
|
|
|
|
199,835
|
|
Gross
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
109,042
|
|
|
|
59,046
|
|
|
|
290,149
|
|
|
|
160,318
|
|
Service
|
|
|
33,941
|
|
|
|
23,758
|
|
|
|
94,201
|
|
|
|
68,024
|
|
Total gross
profit
|
|
|
142,983
|
|
|
|
82,804
|
|
|
|
384,350
|
|
|
|
228,342
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
|
50,920
|
|
|
|
24,691
|
|
|
|
131,112
|
|
|
|
67,003
|
|
Sales and
marketing
|
|
|
72,240
|
|
|
|
38,790
|
|
|
|
193,460
|
|
|
|
116,674
|
|
General and
administrative
|
|
|
11,707
|
|
|
|
9,612
|
|
|
|
35,561
|
|
|
|
27,296
|
|
Acquisition and
integration costs, net of bargain purchase gain
|
|
|
9,316
|
|
|
|
3,418
|
|
|
|
47,675
|
|
|
|
9,908
|
|
Restructuring and
related charges, net of reversals
|
|
|
4,920
|
|
|
|
7,719
|
|
|
|
4,920
|
|
|
|
9,572
|
|
Amortization of
intangibles
|
|
|
2,101
|
|
|
|
1,193
|
|
|
|
6,461
|
|
|
|
7,510
|
|
Total operating
expenses
|
|
|
151,204
|
|
|
|
85,423
|
|
|
|
419,189
|
|
|
|
237,963
|
|
Operating
loss
|
|
|
(8,221)
|
|
|
|
(2,619)
|
|
|
|
(34,839)
|
|
|
|
(9,621)
|
|
Interest
income
|
|
|
740
|
|
|
|
236
|
|
|
|
2,104
|
|
|
|
374
|
|
Interest
expense
|
|
|
(4,044)
|
|
|
|
(1,177)
|
|
|
|
(8,763)
|
|
|
|
(3,000)
|
|
Other income
(expense), net
|
|
|
(359)
|
|
|
|
(251)
|
|
|
|
2,125
|
|
|
|
551
|
|
Loss before income
taxes
|
|
|
(11,884)
|
|
|
|
(3,811)
|
|
|
|
(39,373)
|
|
|
|
(11,696)
|
|
Provision for income
taxes
|
|
|
1,729
|
|
|
|
1,166
|
|
|
|
1,787
|
|
|
|
3,252
|
|
Net loss
|
|
$
|
(13,613)
|
|
|
$
|
(4,977)
|
|
|
$
|
(41,160)
|
|
|
$
|
(14,948)
|
|
Basic and diluted net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share -
basic
|
|
$
|
(0.12)
|
|
|
$
|
(0.05)
|
|
|
$
|
(0.36)
|
|
|
$
|
(0.14)
|
|
Net loss per share -
diluted
|
|
$
|
(0.12)
|
|
|
$
|
(0.05)
|
|
|
$
|
(0.36)
|
|
|
$
|
(0.14)
|
|
Shares used in per
share calculation - basic
|
|
|
115,059
|
|
|
|
109,213
|
|
|
|
113,641
|
|
|
|
107,531
|
|
Shares used in per
share calculation - diluted
|
|
|
115,059
|
|
|
|
109,213
|
|
|
|
113,641
|
|
|
|
107,531
|
|
EXTREME NETWORKS,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
|
|
|
Nine Months
Ended
|
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
Net cash (used in)
provided by operating activities
|
|
$
|
(1,730)
|
|
|
$
|
43,961
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(21,999)
|
|
|
|
(7,832)
|
|
Business
acquisitions
|
|
|
(97,581)
|
|
|
|
(51,088)
|
|
Proceeds from sale of
non-marketable equity investment
|
|
|
4,922
|
|
|
|
—
|
|
Deposit related to
future acquisition
|
|
|
—
|
|
|
|
(10,239)
|
|
Net cash used in
investing activities
|
|
|
(114,658)
|
|
|
|
(69,159)
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
Borrowings under Term
Loan
|
|
|
100,000
|
|
|
|
48,250
|
|
Loan fees on
borrowings
|
|
|
(1,494)
|
|
|
|
(1,327)
|
|
Repayments of
debt
|
|
|
(13,278)
|
|
|
|
(7,775)
|
|
Proceeds from issuance
of common stock, net of tax withholding
|
|
|
4,657
|
|
|
|
9,180
|
|
Payments of contingent
consideration
|
|
|
(671)
|
|
|
|
—
|
|
Net cash provided by
financing activities
|
|
|
89,214
|
|
|
|
48,328
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
effect on cash
|
|
|
(99)
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)
increase in cash and cash equivalents
|
|
|
(27,273)
|
|
|
|
23,158
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period
|
|
|
130,450
|
|
|
|
94,122
|
|
Cash and cash
equivalents at end of period
|
|
$
|
103,177
|
|
|
$
|
117,280
|
|
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,
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) Wireless LAN business, b) Campus Fabric
business, c) Data Center business and d) the bargain purchase gain
for the capital financing business; Extreme Networks excludes these
expenses since they result from an event that is outside the
ordinary course of continuing operations.
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 severance costs for employees which have no benefit to
continuing operations and accrued lease costs pertaining to the
estimated future obligations for non-cancelable lease payments 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. 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
litigation matters.
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
|
|
|
Nine Months
Ended
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
|
(As
adjusted)
|
|
Revenue - GAAP
Basis
|
$
|
262,004
|
|
|
$
|
149,196
|
|
|
$
|
704,842
|
|
|
$
|
428,177
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting
adjustment
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133
|
|
Revenue - Non-GAAP
Basis
|
$
|
262,004
|
|
|
$
|
149,196
|
|
|
$
|
704,842
|
|
|
$
|
428,310
|
|
|
Non-GAAP Gross
Margin
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
|
(As
adjusted)
|
|
Gross profit - GAAP
Basis
|
$
|
142,983
|
|
|
$
|
82,804
|
|
|
$
|
384,350
|
|
|
$
|
228,342
|
|
Gross margin - GAAP
Basis percentage
|
|
54.6%
|
|
|
|
55.5%
|
|
|
|
54.5%
|
|
|
|
53.3%
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
517
|
|
|
|
129
|
|
|
|
1,172
|
|
|
|
737
|
|
Purchase accounting
adjustments
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133
|
|
Acquired inventory
adjustments
|
|
597
|
|
|
|
1,963
|
|
|
|
4,784
|
|
|
|
4,263
|
|
Acquisition and
integration costs
|
|
3,068
|
|
|
|
(413)
|
|
|
|
7,586
|
|
|
|
5,104
|
|
Amortization of
intangibles
|
|
4,581
|
|
|
|
891
|
|
|
|
11,109
|
|
|
|
6,027
|
|
Total adjustments to
GAAP gross profit
|
$
|
8,763
|
|
|
$
|
2,570
|
|
|
$
|
24,651
|
|
|
$
|
16,264
|
|
Gross profit -
Non-GAAP
|
$
|
151,746
|
|
|
$
|
85,374
|
|
|
$
|
409,001
|
|
|
$
|
244,606
|
|
Gross margin -
Non-GAAP percentage
|
|
57.9%
|
|
|
|
57.2%
|
|
|
|
58.0%
|
|
|
|
57.1%
|
|
|
Non-GAAP Operating
Income
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
|
(As
adjusted)
|
|
GAAP operating
loss
|
$
|
(8,221)
|
|
|
$
|
(2,619)
|
|
|
$
|
(34,839)
|
|
|
$
|
(9,621)
|
|
GAAP operating loss
percentage
|
|
(3.1)%
|
|
|
|
(1.8)%
|
|
|
|
(4.9)%
|
|
|
|
(2.2)%
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
7,818
|
|
|
|
2,474
|
|
|
|
19,646
|
|
|
|
9,328
|
|
Acquisition and
integration costs, net of bargain purchase gain
|
|
12,384
|
|
|
|
3,005
|
|
|
|
55,261
|
|
|
|
15,012
|
|
Restructuring charge,
net of reversal
|
|
4,920
|
|
|
|
7,719
|
|
|
|
4,920
|
|
|
|
9,572
|
|
Acquired inventory
adjustments
|
|
597
|
|
|
|
1,963
|
|
|
|
4,784
|
|
|
|
4,263
|
|
Amortization of
intangibles
|
|
6,682
|
|
|
|
2,084
|
|
|
|
17,570
|
|
|
|
13,537
|
|
Purchase accounting
adjustments
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133
|
|
Executive transition
costs
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
Litigation
|
|
207
|
|
|
|
(44)
|
|
|
|
(158)
|
|
|
|
219
|
|
Total adjustments to
GAAP operating income
|
$
|
32,608
|
|
|
$
|
17,201
|
|
|
$
|
102,023
|
|
|
$
|
52,098
|
|
Non-GAAP operating
income
|
$
|
24,387
|
|
|
$
|
14,582
|
|
|
$
|
67,184
|
|
|
$
|
42,477
|
|
Non-GAAP operating
income percentage
|
|
9.3%
|
|
|
|
9.8%
|
|
|
|
9.5%
|
|
|
|
9.9%
|
|
|
Non-GAAP Net
Income
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
|
(As
adjusted)
|
|
GAAP net
loss
|
$
|
(13,613)
|
|
|
$
|
(4,977)
|
|
|
$
|
(41,160)
|
|
|
$
|
(14,948)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
7,818
|
|
|
|
2,474
|
|
|
|
19,646
|
|
|
|
9,328
|
|
Acquisition and
integration costs, net of bargain purchase gain
|
|
12,384
|
|
|
|
3,005
|
|
|
|
55,261
|
|
|
|
15,012
|
|
Restructuring charge,
net of reversal
|
|
4,920
|
|
|
|
7,719
|
|
|
|
4,920
|
|
|
|
9,572
|
|
Acquired inventory
adjustments
|
|
597
|
|
|
|
1,963
|
|
|
|
4,784
|
|
|
|
4,263
|
|
Amortization of
intangibles
|
|
6,682
|
|
|
|
2,084
|
|
|
|
17,570
|
|
|
|
13,537
|
|
Purchase accounting
adjustments
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133
|
|
Executive transition
costs
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
Litigation
|
|
207
|
|
|
|
(44)
|
|
|
|
(158)
|
|
|
|
219
|
|
Gain on sale of
non-marketable equity investment
|
|
—
|
|
|
|
—
|
|
|
|
(3,757)
|
|
|
|
—
|
|
Income tax
|
|
—
|
|
|
|
—
|
|
|
|
(3,102)
|
|
|
|
—
|
|
Total adjustments to
GAAP net loss
|
$
|
32,608
|
|
|
$
|
17,201
|
|
|
$
|
95,164
|
|
|
$
|
52,098
|
|
Non-GAAP net
income
|
$
|
18,995
|
|
|
$
|
12,224
|
|
|
$
|
54,004
|
|
|
$
|
37,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income
per share-diluted
|
$
|
0.16
|
|
|
$
|
0.11
|
|
|
$
|
0.45
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net
income per share-diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP shares
used
|
|
120,688
|
|
|
|
112,576
|
|
|
|
119,588
|
|
|
|
110,455
|
|
|
Free Cash
Flow
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
Cash flow (used in)
provided by operations
|
$
|
(15,978)
|
|
|
$
|
24,673
|
|
|
$
|
(1,730)
|
|
|
$
|
43,961
|
|
Less: PP&E CapEx
spending
|
|
(8,690)
|
|
|
|
(3,170)
|
|
|
|
(21,999)
|
|
|
|
(7,832)
|
|
Total free cash
flow
|
$
|
(24,668)
|
|
|
$
|
21,503
|
|
|
$
|
(23,729)
|
|
|
$
|
36,129
|
|
Investor
Relations
|
Media
Contact
|
Stan
Kovler
|
Christi
Nicolacopoulos
|
919/595-4196
|
603/952-5005
|
Investor_relations@extremenetworks.com
|
pr@extremenetworks.com
|
View original content with
multimedia:http://www.prnewswire.com/news-releases/extreme-networks-reports-third-quarter-fiscal-year-2018-financial-results-300644882.html
SOURCE Extreme Networks, Inc.