SAN JOSE, Calif., Feb. 1, 2017 /PRNewswire/ -- Extreme
Networks, Inc. ("Extreme") (Nasdaq: EXTR) today released financial
results for its fiscal second quarter ended December 31,
2016. Second quarter revenue was $148.1 million. GAAP gross margin for the
second fiscal quarter was 50.9% and non-GAAP gross margin
57.5%. GAAP operating margin for the second fiscal quarter
was (5.0)% and non-GAAP operating margin was 9.4%. GAAP net
loss for the second fiscal quarter was $8.6
million, or $0.08 per basic
share, and non-GAAP net income was $12.7
million, or $0.12 per diluted
share.
"We are pleased to announce solid second quarter results
reflecting strong execution of our operating plan to drive higher
cash flows," stated Ed Meyercord,
President and CEO of Extreme Networks. "During the quarter,
we expanded gross margins and increased profitability through our
focused selling strategy to enterprise campus customers across our
targeted verticals, while also implementing significant cost
savings initiatives. We grew our non-GAAP gross margin by 390
basis points and operating margin by 160 basis points
year-over-year, each reaching their highest levels in three years,
underscoring the progress we have made both strategically and
operationally."
"Looking ahead, we are well-positioned to take advantage of new
growth opportunities by delivering industry-leading solutions and
services to our enterprise customers. These customers include
large, multi-national accounts from our recently acquired WLAN
business from Zebra Technologies. Additionally, we remain
focused on managing our cost structure as we continue to realize
the synergies from the acquired business and implement our
realignment of the Company's resources to accelerate the
achievement of our growth and margin objectives," Meyercord
added.
Recent Key Events:
- Completed Acquisition of Zebra's Wireless LAN Business.
We officially completed our acquisition of Zebra's Wireless LAN
business, solidifying Extreme's position as the third largest
provider in our target enterprise campus market.
- Official Wi-Fi and Wi-Fi Analytics Provider of Super Bowl
LI; MetLife Stadium Win with New York Jets and New York Giants; and
Expanded Partnership with the New England Patriots. Extreme
announced that it will power Super Bowl LI following its wired and
wireless deployment at NRG Stadium in Houston. We also won the MetLife Stadium
(formally Cisco customers) core networking business.
- New Wave2 Wireless APs. We strengthened our
ExtremeWireless™ portfolio with the industry's first Wave2
integrated camera access points, which offer customers significant
cost savings and unified management as compared to traditional
surveillance camera solutions.
- Recognized for Outstanding Partnership Support. Tech
Data awarded Extreme with its 'Growth Vendor Partner of the Year'
award based on our year-over-year sales performance, executive
engagement and overall support for Tech Data.
Fiscal Q2 2017
Financial Metrics:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
GAAP Results of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
109.8
|
|
|
$
|
105.3
|
|
|
$
|
4.5
|
|
|
|
4
|
%
|
Service
|
|
|
38.3
|
|
|
|
34.0
|
|
|
|
4.3
|
|
|
|
13
|
%
|
Total Net
Revenue
|
|
$
|
148.1
|
|
|
$
|
139.3
|
|
|
$
|
8.8
|
|
|
|
6
|
%
|
Gross
Margin
|
|
|
50.9
|
%
|
|
|
50.4
|
%
|
|
|
0.5
|
%
|
|
|
1
|
%
|
Operating
Margin
|
|
|
(5.0)
|
%
|
|
|
(3.8)
|
%
|
|
|
(1.2)
|
%
|
|
|
(32)
|
%
|
Net Loss
|
|
$
|
(8.6)
|
|
|
$
|
(7.2)
|
|
|
$
|
(1.4)
|
|
|
|
(20)
|
%
|
Loss per basic
share
|
|
$
|
(0.08)
|
|
|
$
|
(0.07)
|
|
|
$
|
(0.01)
|
|
|
|
(14)
|
%
|
Non-GAAP Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
109.8
|
|
|
$
|
105.4
|
|
|
$
|
4.4
|
|
|
|
4
|
%
|
Service
|
|
|
38.3
|
|
|
|
34.3
|
|
|
|
4.0
|
|
|
|
12
|
%
|
Total Net
Revenue
|
|
$
|
148.1
|
|
|
$
|
139.7
|
|
|
$
|
8.4
|
|
|
|
6
|
%
|
Gross
Margin
|
|
|
57.5
|
%
|
|
|
53.6
|
%
|
|
|
3.9
|
%
|
|
|
7
|
%
|
Operating
Margin
|
|
|
9.4
|
%
|
|
|
7.8
|
%
|
|
|
1.6
|
%
|
|
|
21
|
%
|
Net Income
|
|
$
|
12.7
|
|
|
$
|
9.0
|
|
|
$
|
3.7
|
|
|
|
41
|
%
|
Earnings per diluted
share
|
|
$
|
0.12
|
|
|
$
|
0.09
|
|
|
$
|
0.03
|
|
|
|
33
|
%
|
- Cash and investments ended the quarter at $103.8 million, as compared to $102.3 million from the prior quarter and an
increase of $17.9 million from the
prior year.
- Accounts receivable balance ending Q2 was $117.8 million, with days sales outstanding
("DSO") of 73.
- Inventory ending Q2 was $47.4
million, an increase of $4.0
million from the prior quarter and down $9.2 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 third quarter of fiscal 2017 ending March 31, 2017, the Company is targeting revenue
in a range of $151.0 million to $161.0
million. GAAP gross margin is targeted between 53.4%
and 54.5% and non-GAAP gross margin is targeted between 55.5% and
56.5%. Operating expenses are targeted to be between $90.3 million and $92.8 million on a GAAP basis
and $74.9 million to $77.5 million on
a non-GAAP basis. GAAP earnings are targeted to be between a net
loss of $7.4 million to $12.0 million, or a loss of $0.07 to $0.11 per
share. Non-GAAP earnings are targeted in a range of net
income of $6.6 million to $11.2
million, or $0.06 to $0.10 per
diluted share. The GAAP and non-GAAP net income (loss) targets are
based on an estimated 109.1 million and 110.6 million average
outstanding shares, respectively.
The following table shows the GAAP to non-GAAP reconciliation
for Q3FY'17 guidance:
|
Gross Margin
Rate
|
|
|
Operating Margin
Rate
|
|
|
Earnings per
Share
|
|
GAAP
|
53.4% -
54.5%
|
|
|
(6.4)% -
(3.2)%
|
|
|
$(0.11) -
$(0.07)
|
|
Estimated adjustments
for:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
product intangibles
|
1.9%
|
|
|
1.9%
|
|
|
$
|
0.03
|
|
Stock based
compensation
|
0.3%
|
|
|
2.4%
|
|
|
$
|
0.03
|
|
Restructuring charge,
net
|
-
|
|
|
5.0%
|
|
|
$
|
0.07
|
|
Amortization of non
product intangibles
|
-
|
|
|
0.8%
|
|
|
$
|
0.01
|
|
Acquisition and
integration costs
|
-
|
|
|
2.3%
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
|
55.5% -
56.5%
|
|
|
5.9% -
8.4%
|
|
|
$0.06 -
$0.10
|
|
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 second
fiscal quarter results as well as the third fiscal quarter 2017
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 1, 2018. The conference
call may also be heard by dialing 1-877-303-9826
(international callers dial 1-224-357-2194). Supplemental financial
information to be discussed during the conference call will be
posted in the Investor Relations section of the Company's website
www.extremenetworks.com including the non-GAAP reconciliation
attached to this press release. The encore recording can be
accessed by dialing (855) 859-2056 /or international 1 (404)
537-3406 Conference ID # 40315271.
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 data center, on premise or
through the cloud, we go to extreme measures for our customers in
more than 80 countries, delivering 100% insourced call-in technical
support to organizations large and small, including some of the
world's leading names in business, hospitality, retail,
transportation and logistics, education, government, healthcare and
manufacturing. Founded in 1996, Extreme is headquartered
in San Jose, California. For
more information, visit Extreme's website or call
1-888-257-3000.
Extreme Networks and the Extreme Networks logo,
ExtremeManagement, ExtremeWireless, ExtremeControl and
ExtremeAnalytics are either trademarks or registered trademarks
of Extreme Networks, Inc. in the United
States and/or other countries.
Non-GAAP Financial Measures:
Extreme provides all
financial information required in accordance with generally
accepted accounting principles ("GAAP"). The Company is providing
with this press release non-GAAP gross margins, non-GAAP operating
expenses, and non-GAAP earnings per share. In preparing non-GAAP
information, the Company has excluded, where applicable, the impact
of share-based compensation, acquisition and integration costs,
purchase accounting adjustments, acquired inventory adjustments,
amortization of acquired intangibles, restructuring charges,
executive transition costs, litigation expenses and overhead
adjustments. The Company believes that excluding these items
provides both management and investors with additional insight into
its current operations, the trends affecting the Company, the
Company's marketplace performance, and the Company's ability to
generate cash from operations. Please note the Company's non-GAAP
measures may be different than those used by other companies. The
additional non-GAAP financial information the Company presents
should be considered in conjunction with, and not as a substitute
for, the Company's GAAP financial information.
The Company has provided a non-GAAP reconciliation of the
results for the periods presented in this release, which are
adjusted to exclude certain items as indicated. These
measures should only be used to evaluate the Company's results of
operations in conjunction with the corresponding GAAP measures for
comparable financial information and understanding of the Company's
ongoing performance as a business. Extreme Networks uses both GAAP
and non-GAAP measures to evaluate and manage its operations.
Forward Looking Statements:
Statements in this
release, including those concerning the Company's business outlook,
future financial and operating results, 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 WLAN business from Zebra
Technologies Corporation and to successfully integrate the acquired
technologies and operations 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; the timing of any recovery in the
global economy; 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,
2016
|
|
|
June 30,
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
103,786
|
|
|
$
|
94,122
|
|
Accounts receivable,
net of allowances of $2,451 at December 31, 2016 and $3,257 at June
30, 2016
|
|
|
117,819
|
|
|
|
81,419
|
|
Inventories
|
|
|
47,394
|
|
|
|
40,989
|
|
Prepaid expenses and
other current assets
|
|
|
14,806
|
|
|
|
12,438
|
|
Total current
assets
|
|
|
283,805
|
|
|
|
228,968
|
|
Property and
equipment, net
|
|
|
30,599
|
|
|
|
29,580
|
|
Intangible assets,
net
|
|
|
29,854
|
|
|
|
19,762
|
|
Goodwill
|
|
|
80,713
|
|
|
|
70,877
|
|
Other
assets
|
|
|
25,026
|
|
|
|
25,236
|
|
Total
assets
|
|
$
|
449,997
|
|
|
$
|
374,423
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current portion of
long-term debt
|
|
$
|
10,020
|
|
|
$
|
17,628
|
|
Accounts
payable
|
|
|
26,841
|
|
|
|
30,711
|
|
Accrued compensation
and benefits
|
|
|
28,188
|
|
|
|
27,145
|
|
Accrued
warranty
|
|
|
10,228
|
|
|
|
9,600
|
|
Deferred revenue,
net
|
|
|
81,404
|
|
|
|
72,934
|
|
Deferred distributors
revenue, net of cost of sales to distributors
|
|
|
41,333
|
|
|
|
26,817
|
|
Other accrued
liabilities
|
|
|
39,885
|
|
|
|
26,691
|
|
Total current
liabilities
|
|
|
237,899
|
|
|
|
211,526
|
|
Deferred revenue,
less current portion
|
|
|
24,519
|
|
|
|
21,926
|
|
Long-term debt, less
current portion
|
|
|
87,127
|
|
|
|
37,446
|
|
Deferred income
taxes
|
|
|
5,615
|
|
|
|
4,693
|
|
Other long-term
liabilities
|
|
|
9,017
|
|
|
|
8,635
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
85,820
|
|
|
|
90,197
|
|
Total liabilities and
stockholders' equity
|
|
$
|
449,997
|
|
|
$
|
374,423
|
|
EXTREME NETWORKS,
INC.
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(In thousands,
except per share amounts)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
109,789
|
|
|
$
|
105,355
|
|
|
$
|
199,920
|
|
|
$
|
196,736
|
|
Service
|
|
|
38,322
|
|
|
|
33,950
|
|
|
|
70,833
|
|
|
|
67,150
|
|
Total net
revenues
|
|
|
148,111
|
|
|
|
139,305
|
|
|
|
270,753
|
|
|
|
263,886
|
|
Cost of
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
58,659
|
|
|
|
57,103
|
|
|
|
103,586
|
|
|
|
104,037
|
|
Service
|
|
|
14,098
|
|
|
|
11,927
|
|
|
|
26,567
|
|
|
|
24,456
|
|
Total cost of
revenues
|
|
|
72,757
|
|
|
|
69,030
|
|
|
|
130,153
|
|
|
|
128,493
|
|
Gross
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
51,130
|
|
|
|
48,252
|
|
|
|
96,334
|
|
|
|
92,699
|
|
Service
|
|
|
24,224
|
|
|
|
22,023
|
|
|
|
44,266
|
|
|
|
42,694
|
|
Total gross
profit
|
|
|
75,354
|
|
|
|
70,275
|
|
|
|
140,600
|
|
|
|
135,393
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
|
24,013
|
|
|
|
20,716
|
|
|
|
42,312
|
|
|
|
40,984
|
|
Sales and
marketing
|
|
|
41,109
|
|
|
|
37,058
|
|
|
|
78,065
|
|
|
|
73,120
|
|
General and
administrative
|
|
|
9,397
|
|
|
|
9,775
|
|
|
|
17,684
|
|
|
|
18,951
|
|
Acquisition and
integration costs
|
|
|
4,169
|
|
|
|
807
|
|
|
|
6,490
|
|
|
|
1,145
|
|
Restructuring and
related charges, net of reversals
|
|
|
1,853
|
|
|
|
3,031
|
|
|
|
1,853
|
|
|
|
8,634
|
|
Amortization of
intangibles
|
|
|
2,175
|
|
|
|
4,251
|
|
|
|
6,317
|
|
|
|
8,718
|
|
Total operating
expenses
|
|
|
82,716
|
|
|
|
75,638
|
|
|
|
152,721
|
|
|
|
151,552
|
|
Operating
loss
|
|
|
(7,362)
|
|
|
|
(5,363)
|
|
|
|
(12,121)
|
|
|
|
(16,159)
|
|
Interest
income
|
|
|
81
|
|
|
|
29
|
|
|
|
138
|
|
|
|
56
|
|
Interest
expense
|
|
|
(1,176)
|
|
|
|
(809)
|
|
|
|
(1,823)
|
|
|
|
(1,635)
|
|
Other income
(expense), net
|
|
|
1,025
|
|
|
|
112
|
|
|
|
802
|
|
|
|
1,079
|
|
Loss before income
taxes
|
|
|
(7,432)
|
|
|
|
(6,031)
|
|
|
|
(13,004)
|
|
|
|
(16,659)
|
|
Provision for income
taxes
|
|
|
1,179
|
|
|
|
1,203
|
|
|
|
2,086
|
|
|
|
2,101
|
|
Net loss
|
|
$
|
(8,611)
|
|
|
$
|
(7,234)
|
|
|
$
|
(15,090)
|
|
|
$
|
(18,760)
|
|
Basic and diluted net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share -
basic
|
|
$
|
(0.08)
|
|
|
$
|
(0.07)
|
|
|
$
|
(0.14)
|
|
|
$
|
(0.18)
|
|
Net loss per share -
diluted
|
|
$
|
(0.08)
|
|
|
$
|
(0.07)
|
|
|
$
|
(0.14)
|
|
|
$
|
(0.18)
|
|
Shares used in per
share calculation - basic
|
|
|
107,425
|
|
|
|
102,369
|
|
|
|
106,690
|
|
|
|
101,677
|
|
Shares used in per
share calculation - diluted
|
|
|
107,425
|
|
|
|
102,369
|
|
|
|
106,690
|
|
|
|
101,677
|
|
EXTREME NETWORKS,
INC.
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(In
thousands)
|
(Unaudited)
|
|
|
|
|
|
|
Six Months
Ended
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Net cash provided by
operating activities
|
|
$
|
19,288
|
|
|
$
|
13,967
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(4,662)
|
|
|
|
(1,409)
|
|
Acquisition
|
|
|
(51,088)
|
|
|
|
-
|
|
Net cash used in
investing activities
|
|
|
(55,750)
|
|
|
|
(1,409)
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
Borrowings under
Revolving Facility
|
|
|
-
|
|
|
|
15,000
|
|
Borrowings under Term
Loan
|
|
|
48,250
|
|
|
|
|
|
Loan fees on
borrowings
|
|
|
(1,327)
|
|
|
|
|
|
Repayment of
debt
|
|
|
(5,513)
|
|
|
|
(19,875)
|
|
Proceeds from issuance
of common stock
|
|
|
4,831
|
|
|
|
2,330
|
|
Net cash provided by
(used in) financing activities
|
|
|
46,241
|
|
|
|
(2,545)
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
effect on cash
|
|
|
(115)
|
|
|
|
(373)
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
and cash equivalents
|
|
|
9,664
|
|
|
|
9,640
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period
|
|
|
94,122
|
|
|
|
76,225
|
|
Cash and cash
equivalents at end of period
|
|
$
|
103,786
|
|
|
$
|
85,865
|
|
Extreme Networks, Inc.
Non-GAAP
Measures of Financial Performance
To supplement the Company's consolidated financial statements
presented in accordance with generally accepted accounting
principles, ("GAAP"), Extreme Networks uses non-GAAP measures of
certain components of financial performance. These non-GAAP
measures include non-GAAP net income, non-GAAP earnings per diluted
share, non-GAAP gross margin, non-GAAP operating expenses and free
cash flow.
Reconciliation to the nearest GAAP measure of all historical
non-GAAP measures included in this press release can be found in
the tables included with this press release. In this press
release, Extreme Networks also presents its target for non-GAAP
expenses, which is expenses less share-based compensation expense,
acquisition and integration costs, purchase accounting adjustments,
acquired inventory adjustments, amortization of intangibles,
restructuring expenses, executive transition expenses, litigation
expense and overhead adjustments.
Non-GAAP measures presented in this press release are not in
accordance with or alternative measures prepared in accordance with
GAAP and may be different from non-GAAP measures used by other
companies. In addition, these non-GAAP measures are not based
on any comprehensive set of accounting rules or principles.
Non-GAAP measures have limitations in that they do not reflect all
of the amounts associated with Extreme Networks' results of
operations as determined in accordance with GAAP. These
non-GAAP measures should only be used to evaluate Extreme Networks'
results of operations in conjunction with the corresponding GAAP
measures.
Extreme believes these non-GAAP measures when shown in
conjunction with the corresponding GAAP measures enhance investors'
and management's overall understanding of the Company's current
financial performance and the Company's prospects for the future,
including cash flows available to pursue opportunities to enhance
shareholder value. In addition, because Extreme Networks has
historically reported certain non-GAAP results to investors, the
Company believes the inclusion of non-GAAP measures provides
consistency in the Company's financial reporting.
For its internal planning process, and as discussed further
below, Extreme's management uses financial statements that do not
include share-based compensation expense, acquisition and
integration costs, purchase accounting adjustments, acquired
inventory adjustment, amortization of intangibles,
restructuring expenses, executive transition costs,
litigation expenses and overhead adjustments. Extreme's
management also uses non-GAAP measures, in addition to the
corresponding GAAP measures, in reviewing the Company's financial
results.
As described above, Extreme excludes the following items from
one or more of its non-GAAP measures when applicable.
Share-based compensation. This expense consists of
expenses for stock options, restricted stock and employee stock
purchases through its ESPP. Extreme Networks excludes
share-based compensation expenses from its non-GAAP measures
primarily because they are non-cash expenses that the Company does
not believe are reflective of ongoing cash requirement related to
operating results. Extreme Networks expects to incur share-based
compensation expenses in future periods.
Acquisition and integration costs. Acquisition and
integration costs consist of legal and professional fees related to
the acquisition of Zebra Technologies Corporation's wireless LAN
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 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. The Company does not believe these
expenses are reflective of ongoing cash requirements related to its
operating results.
Litigation expenses. Litigation expenses consist of legal
and professional fees and expenses related to our on-going ligation
matter as a result of a securities laws class action lawsuit.
Overhead adjustments. Overhead adjustment relate to
service inventory overhead capitalization, this was a one-time
event and was non-cash in nature.
In addition to the non-GAAP measures discussed above, Extreme
uses free cash flow as a measure of operating performance.
Free cash flow represents operating cash flows less net purchase of
property and equipment on a GAAP basis. Extreme considers
free cash flows to be a liquidity measure that provides useful
information to management and investors about the amount of cash
generated by the business after the purchases of property and
equipment, which can then be used to, among other things, invest in
Extreme's business, make strategic acquisitions, and strengthen the
balance sheet. A limitation of the utility of free cash flows
as a measure of financial performance is that it does not represent
the total increase or decrease in the Company's cash balance for
the period.
EXTREME NETWORKS,
INC.
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
GAAP TO NON-GAAP
RECONCILIATION
|
(In thousands,
except per share amounts)
|
(Unaudited)
|
|
|
|
|
|
|
Non-GAAP
Revenue
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue - GAAP
Basis
|
$
|
148,111
|
|
|
$
|
139,305
|
|
|
$
|
270,753
|
|
|
$
|
263,886
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting
adjustment
|
|
-
|
|
|
|
377
|
|
|
|
133
|
|
|
|
754
|
|
Revenue - Non-GAAP
Basis
|
$
|
148,111
|
|
|
$
|
139,682
|
|
|
$
|
270,886
|
|
|
$
|
264,640
|
|
|
Non-GAAP Gross
Margin
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit - GAAP
Basis
|
$
|
75,354
|
|
|
$
|
70,275
|
|
|
$
|
140,600
|
|
|
$
|
135,393
|
|
Gross margin - GAAP
Basis percentage
|
|
50.9
|
%
|
|
|
50.4
|
%
|
|
|
51.9
|
%
|
|
|
51.3
|
%
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
308
|
|
|
|
554
|
|
|
|
608
|
|
|
|
1,216
|
|
Purchase accounting
adjustments
|
|
-
|
|
|
|
377
|
|
|
|
133
|
|
|
|
754
|
|
Acquired inventory
adjustments
|
|
2,300
|
|
|
|
-
|
|
|
|
2,300
|
|
|
|
-
|
|
Acquisition and
integration costs
|
|
5,517
|
|
|
|
-
|
|
|
|
5,517
|
|
|
|
-
|
|
Amortization of
intangibles
|
|
1,719
|
|
|
|
3,708
|
|
|
|
5,136
|
|
|
|
8,000
|
|
Service inventory
overhead capitalization
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,493)
|
|
Gross profit -
Non-GAAP Basis
|
$
|
85,198
|
|
|
$
|
74,914
|
|
|
$
|
154,294
|
|
|
$
|
143,870
|
|
Gross margin -
Non-GAAP Basis percentage
|
|
57.5
|
%
|
|
|
53.6
|
%
|
|
|
57.0
|
%
|
|
|
54.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Operating
Income
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating
loss
|
$
|
(7,362)
|
|
|
$
|
(5,363)
|
|
|
$
|
(12,121)
|
|
|
$
|
(16,159)
|
|
GAAP operating loss
percentage
|
|
(5.0)
|
%
|
|
|
(3.8)
|
%
|
|
|
(4.5)
|
%
|
|
|
(6.1)
|
%
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
3,381
|
|
|
|
3,945
|
|
|
|
6,856
|
|
|
|
8,616
|
|
Acquisition and
integration costs
|
|
9,686
|
|
|
|
807
|
|
|
|
12,007
|
|
|
|
1,145
|
|
Restructuring charge,
net of reversal
|
|
1,853
|
|
|
|
3,031
|
|
|
|
1,853
|
|
|
|
8,634
|
|
Acquired inventory
adjustments
|
|
2,300
|
|
|
|
-
|
|
|
|
2,300
|
|
|
|
-
|
|
Amortization of
intangibles
|
|
3,894
|
|
|
|
7,959
|
|
|
|
11,453
|
|
|
|
16,718
|
|
Purchase accounting
adjustments
|
|
-
|
|
|
|
377
|
|
|
|
133
|
|
|
|
754
|
|
Executive transition
costs
|
|
-
|
|
|
|
-
|
|
|
|
34
|
|
|
|
-
|
|
Litigation
|
|
236
|
|
|
|
79
|
|
|
|
263
|
|
|
|
79
|
|
Service inventory
overhead capitalization
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,493)
|
|
Total adjustments to
GAAP operating loss
|
$
|
21,350
|
|
|
$
|
16,198
|
|
|
$
|
34,899
|
|
|
$
|
34,453
|
|
Non-GAAP operating
income
|
$
|
13,988
|
|
|
$
|
10,835
|
|
|
$
|
22,778
|
|
|
$
|
18,294
|
|
Non-GAAP operating
income percentage
|
|
9.4
|
%
|
|
|
7.8
|
%
|
|
|
8.4
|
%
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Net
Income
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net
loss
|
$
|
(8,611)
|
|
|
$
|
(7,234)
|
|
|
$
|
(15,090)
|
|
|
$
|
(18,760)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
3,381
|
|
|
|
3,945
|
|
|
|
6,856
|
|
|
|
8,616
|
|
Acquisition and
integration costs
|
|
9,686
|
|
|
|
807
|
|
|
|
12,007
|
|
|
|
1,145
|
|
Restructuring charge,
net of reversal
|
|
1,853
|
|
|
|
3,031
|
|
|
|
1,853
|
|
|
|
8,634
|
|
Amortization of
intangibles
|
|
3,894
|
|
|
|
7,959
|
|
|
|
11,453
|
|
|
|
16,718
|
|
Acquired inventory
adjustments
|
|
2,300
|
|
|
|
-
|
|
|
|
2,300
|
|
|
|
-
|
|
Purchase accounting
adjustments
|
|
-
|
|
|
|
377
|
|
|
|
133
|
|
|
|
754
|
|
Executive transition
costs
|
|
-
|
|
|
|
-
|
|
|
|
34
|
|
|
|
-
|
|
Litigation
|
|
236
|
|
|
|
79
|
|
|
|
263
|
|
|
|
79
|
|
Service inventory
overhead capitalization
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,493)
|
|
Total adjustments to
GAAP net loss
|
$
|
21,350
|
|
|
$
|
16,198
|
|
|
$
|
34,899
|
|
|
$
|
34,453
|
|
Non-GAAP net
income
|
$
|
12,739
|
|
|
$
|
8,964
|
|
|
$
|
19,809
|
|
|
$
|
15,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP diluted net
income per share
|
$
|
0.12
|
|
|
$
|
0.09
|
|
|
$
|
0.18
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
diluted net income per share calculation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP shares
used
|
|
110,152
|
|
|
|
105,087
|
|
|
|
109,394
|
|
|
|
103,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free Cash
Flow
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by
operations
|
$
|
9,713
|
|
|
$
|
7,441
|
|
|
$
|
19,288
|
|
|
$
|
13,967
|
|
Less: PP&E CapEx
spending
|
|
(3,027)
|
|
|
$
|
(776)
|
|
|
|
(4,662)
|
|
|
|
(1,409)
|
|
Total free cash
flow
|
$
|
6,686
|
|
|
$
|
6,665
|
|
|
$
|
14,626
|
|
|
$
|
12,558
|
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/extreme-networks-reports-second-quarter-fiscal-year-2017-financial-results-300400834.html
SOURCE Extreme Networks, Inc.