SAN JOSE, Calif., Aug. 8, 2018 /PRNewswire/ -- Extreme
Networks, Inc. ("Extreme") (Nasdaq: EXTR) today released financial
results for its fiscal fourth quarter and full fiscal year ended
June 30, 2018.
Fourth Quarter Results:
- Fourth quarter revenue was $278.3
million, or an increase of 56% year-over-year.
- GAAP gross margin for the fourth fiscal quarter was 54.0%, a
reduction of 340 basis points year-over-year, and non-GAAP gross
margin was 57.6%, an increase of 10 basis points
year-over-year.
- GAAP operating margin for the fourth fiscal quarter was (1.2)%
and non-GAAP operating margin was 9.8%, compared to 8.8% and 12.8%,
respectively, year-over-year.
- GAAP net loss for the fourth fiscal quarter was $5.6 million, or $(0.05) per basic share, a decrease of
$18.8 million and $0.17 per basic share, year-over-year. Non-GAAP
net income was $24.0 million, or
$0.20 per diluted share, an increase
of $3.6 million and $0.02 per diluted share, year-over-year.
Fiscal Year Results:
- Fiscal year revenue was $983.1
million, or an increase of 62% year-over-year.
- Fiscal year GAAP net loss for the fiscal year was $46.8 million, or $0.41 per basic share, an increase of
$45.0 million and $0.39 per basic share, year-over-year. Non-GAAP
net income was $78.0 million, or
$0.65 per diluted share, or an
increase of $20.4 million and
$0.13 per diluted share,
year-over-year.
"Our FY18 results highlight year-over-year revenue growth and
non-GAAP gross margin improvement. We completed two acquisitions
during the fiscal year and achieved 5% year-over-year organic
revenue growth in our core Extreme wired and wireless business in
our fiscal fourth quarter, the fourth quarter in a row of
year-over-year organic growth," stated Ed
Meyercord, President and CEO of Extreme Networks.
"On June 19, we launched our Smart
OmniEdge solution for wired and wireless networks, along with
validated designs for the educational, healthcare, and retail
verticals. We expect to build on our network edge capabilities
throughout fiscal 2019 as the industry embraces 802.11ax
technology."
"Looking out into fiscal 2019, we are entering the year with
$98 million of cross-sell
opportunities after closing $40
million in FY18. However, we are resetting expectations for
our data center business, and are taking swift action to rebuild
our sales pipeline after a disappointing fiscal fourth quarter,
while celebrating some key wins. Last quarter, we completed a
digital transformation initiative within our supply chain and
vendor managed inventory systems, allowing us to run a much more
responsive operation. We are now undertaking an initiative over the
next six months to bring our portfolio together and consolidate
distribution to improve channel efficiency. We expect this change
to impact our revenues for the first two quarters of fiscal 2019 by
approximately $30-40 million as
compared with prior full-year outlook. We believe these actions
will materially improve our operating efficiency and working
capital. While we expect the combination of lower anticipated
revenue in our data center business and our initiative to
consolidate distribution to result in a challenging fiscal first
quarter 2019, we expect sequential revenue improvements throughout
the fiscal year, and we continue to target a 60% gross margin after
fiscal Q1," Meyercord added.
Lastly, Meyercord added: "We have a strong team with a track
record of execution. We stabilized and transformed the original
Enterasys acquisition into a growth asset. We transformed the Zebra
WLAN business into a growth asset with significantly higher
margins. We stabilized the Avaya networking assets where we are
projecting growth at significantly higher gross margins. And
now, we are focused on driving growth and higher margins in the
data center business we acquired from Brocade. We are investing in
our datacenter solutions portfolio and are confident we will be
able to grow this business at higher margins. With a growing
pipeline of cross-sell opportunities, we have more evidence now
than ever before, that our end-to-end networking strategy from the
wireless edge to the cloud datacenter will drive overall growth and
margin expansion at Extreme."
Recent Key Highlights:
- Extreme Networks named a leader for the first time in the
*2018 Gartner Magic Quadrant for Wired and Wireless LAN Access
Infrastructure. On July 13,
Extreme Networks, Inc. announced that it is now positioned as a
Leader by Gartner, Inc. in the Gartner Magic Quadrant for Wired and
Wireless LAN Access Infrastructure.
- Extreme Networks named a challenger for the first time
in the **2018 Gartner Magic Quadrant for Data Center
Networking.
*Gartner, Magic Quadrant for the Wired and Wireless LAN Access
Infrastructure, 11 July 2018.
**Gartner, Magic Quadrant for Data Center Networking, 11 July 2018
Gartner does not endorse any vendor, product or service depicted
in its research publications, and does not advise technology users
to select only those vendors with the highest ratings or other
designation. Gartner research publications consist of the opinions
of Gartner's research organization and should not be construed as
statements of fact. Gartner disclaims all warranties, expressed or
implied, with respect to this research, including any warranties of
merchantability or fitness for a particular purpose.
- Extreme Networks introduced its new Smart OmniEdge
Solution. Smart OmniEdge is a powerful artificial intelligence
(AI) enabled network edge solution that offers enterprises the
ability to deliver an exceptional customer-driven experience with
pervasive intelligence, business adaptability and intrinsic
security to accelerate their digital transformation. The solution
brings intelligence, adaptability and security to campus and
distributed environments via on-premise deployments or as-a-service
to accelerate business transformation for enterprise
customers.
- In our Data Center business, Extreme Networks secured wins with
one of the largest corporate data centers in the world and a
leading research university with 40,000 students. These customers
are deploying SLX switches, part of our Agile Data Center solution,
to meet requirements for deep packet buffering, leaf/spine
architecture, workflow agility and programmability
- Seven primary and higher education institutions
worldwide, including SUNY Canton,
Rivier University, City University of London, Somerset College, American School of
Dubai, Chungbuk National University and Manukau Institute of
Technology, recently chose Extreme Networks to connect their
classrooms and enable their digital learning environments. With
technology from Extreme Networks' Smart OmniEdge and Automated
Campus solutions, these customers are able to offer eSports
programs, expand personalized learning and increase security, among
other initiatives.
- Melbourne's Metro
Trains, one of Australia's
largest metropolitan rail services, selected ExtremeSwitching 10G
Ethernet core and edge switching solutions to deliver an agile,
adaptive, and secure network supporting its system-wide, real-time
CCTV and video system. With ExtremeSwitching technology, part of
Extreme's Smart OmniEdge solution, Metro Trains has real-time
access to 100 TB of video traffic daily, equivalent to 20,000 high
definition films streaming simultaneously.
- University of Florida -
University Athletic Association, Inc.(UAA), a non-profit
corporation responsible for maintaining the Florida Gators college
sports program will deploy Extreme Networks' Smart OmniEdge
solutions, at Ben Hill Griffin Stadium (aka The Swamp). With
capacity for 90,000-plus fans, it is the 12th largest football
stadium in America, and Extreme's first NCAA win in the
Southeastern Conference Division. The completely under-seat
deployment will include ExtremeMobility, ExtremeSwitching,
solutions, powered by ExtremeApplications (including
ExtremeAnalytics and ExtremeControl), ExtremeControl, and the
first-ever stadium deployment of ExtremeLocation.
- Texas Tech University Health Sciences
Center (TTUHSC), a multi-campus medical school based in
Lubbock, Texas, with over 4,000
students, installed a range of Extreme Networks' Smart OmniEdge
solutions to enable IoT and to provide new medical technology for
end users. ExtremeApplications provide the customer with
application management, visibility and analytics.
Fiscal Q4 2018 Financial Metrics:
(in millions, except percentages and per share information)
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
|
|
|
|
|
GAAP Results of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
221.3
|
|
|
$
|
141.0
|
|
|
$
|
80.3
|
|
|
|
57
|
%
|
Service
|
|
57.0
|
|
|
|
38.0
|
|
|
|
19.1
|
|
|
|
50
|
%
|
Total Net
Revenue
|
$
|
278.3
|
|
|
$
|
178.9
|
|
|
$
|
99.4
|
|
|
|
56
|
%
|
Gross
Margin
|
|
54.0
|
%
|
|
|
57.4
|
%
|
|
(340) bps
|
|
|
|
(6)
|
%
|
Operating
Margin
|
|
(1.2)
|
%
|
|
|
8.8
|
%
|
|
(1,000)
bps
|
|
|
|
(114)
|
%
|
Net Income
(Loss)
|
$
|
(5.6)
|
|
|
$
|
13.2
|
|
|
$
|
(18.8)
|
|
|
|
(143)
|
%
|
Income (loss) per
diluted share
|
$
|
(0.05)
|
|
|
$
|
0.12
|
|
|
$
|
(0.17)
|
|
|
|
(142)
|
%
|
Non-GAAP Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
221.3
|
|
|
$
|
141.0
|
|
|
$
|
80.3
|
|
|
|
57
|
%
|
Service
|
|
57.0
|
|
|
|
38.0
|
|
|
|
19.1
|
|
|
|
50
|
%
|
Total Net
Revenue
|
$
|
278.3
|
|
|
$
|
178.9
|
|
|
$
|
99.4
|
|
|
|
56
|
%
|
Gross
Margin
|
|
57.6
|
%
|
|
|
57.5
|
%
|
|
10 bps
|
|
|
|
0
|
%
|
Operating
Margin
|
|
9.8
|
%
|
|
|
12.8
|
%
|
|
(300) bps
|
|
|
|
(23)
|
%
|
Net Income
|
$
|
24.0
|
|
|
$
|
20.4
|
|
|
$
|
3.6
|
|
|
|
18
|
%
|
Earnings per diluted
share
|
$
|
0.20
|
|
|
$
|
0.18
|
|
|
$
|
0.02
|
|
|
|
11
|
%
|
- 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 $122.6 million, an increase of $17.3 million from Q3 and a decrease of
$7.8 million from Q4 last year. This
is driven primarily by the funding and integration of the
acquisition of our Campus Fabric and Data Center businesses.
- Accounts receivable balance ending Q4 was $212.4 million, with days sales outstanding
("DSO") at 69.
- Q4 ending inventory was $63.9
million, a decrease of $13.9
million from the prior quarter and a decrease of
$16.5 million from Q4 last year.
- Q4 ending debt was $197.8
million, up $19.1 million from
Q3 and an increase of $105.1 million
from Q4 last year. This was 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 first quarter of fiscal 2019, ending September 30, 2018, the Company is targeting
revenue in a range of $230.0 million
to $240.0 million. GAAP gross
margin is targeted between 56.6% and 58.7% and non-GAAP gross
margin is targeted between 58.5% and 60.5%. Operating expenses are
targeted to be between $140.8 million
and $143.8 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 net loss of $14.6
million to $6.9 million or
($0.12) to ($0.06) per basic share. Non-GAAP earnings
are targeted in a range of net income of $0.6 million to $8.3
million, or $0.00 to
$0.07 per diluted share. The GAAP and
non-GAAP per share targets are based on 117.8 and 122.7 million
average outstanding shares, respectively.
The following table shows the GAAP to non-GAAP reconciliation
for Q1 FY'19 guidance:
|
Gross Margin
Rate
|
|
Operating
Margin Rate
|
|
Earnings per
Share
|
GAAP
|
56.6% -
58.7%
|
|
(4.6)% -
(1.2)%
|
|
($0.12) -
($0.06)
|
Estimated adjustments
for:
|
|
|
|
|
|
Amortization of
product intangibles
|
1.7%
|
|
1.7%
|
|
$
|
0.03
|
Stock based
compensation
|
0.2%
|
|
4.1%
|
|
$
|
0.08
|
Amortization of non
product intangibles
|
-
|
|
0.7%
|
|
$
|
0.01
|
|
|
|
|
|
|
Non-GAAP
|
58.5% -
60.5%
|
|
2.0% -
5.1%
|
|
$0.00 -
$0.07
|
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 8:30 a.m. Eastern (5:30 a.m. Pacific)
today to review the Fourth fiscal quarter results as well as the
first fiscal quarter 2019 business outlook, including significant
factors and assumptions underlying the targets noted above. The
conference call will be available to the public through a live
audio web broadcast via the internet at
http://investor.extremenetworks.com and a replay of the call will
be available on the website through August
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 # 5987364.
About Extreme Networks:
Extreme Networks, Inc. (EXTR) delivers software-driven solutions
from the enterprise edge to the cloud that are agile, adaptive, and
secure to enable digital transformation. Our 100% in-sourced
services and support are number one in the industry. Even with
30,000 customers globally, including half of the Fortune 50 and
some of the world's leading names in business, hospitality, retail,
transportation and logistics, education, government, healthcare and
manufacturing, we remain nimble and responsive to ensure customer
and partner success. We call this Customer-Driven Networking™.
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
Automated Campus, Extreme Smart OmniEdge, Extreme Agile Data
Center, ExtremeAnalytics, ExtremeApplications, ExtremeControl,
ExtremeLocation, ExtremeMobility and ExtremeSwitching, 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 expenses,
contingent consideration liability, executive transition costs,
litigation expenses, other income, interest expense 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 our ability to rebuild our data center
sales pipeline, the success of our digital transformation
initiative, the consolidation of our distributors, and the
successful introduction of new products, and our 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 data center and
campus fabric businesses; 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)
|
|
|
June 30,
2018
|
|
June 30,
2017
|
|
|
|
|
(As
adjusted)
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
121,139
|
|
$
|
130,450
|
Accounts receivable,
net of allowance for doubtful accounts of $1,478 and $1,190 at June
30, 2018 and 2017, respectively
|
|
212,423
|
|
|
93,115
|
Inventories
|
|
63,867
|
|
|
47,410
|
Prepaid expenses and
other current assets
|
|
30,484
|
|
|
27,867
|
Total current
assets
|
|
427,913
|
|
|
298,842
|
Property and
equipment, net
|
|
78,519
|
|
|
30,240
|
Intangible assets,
net
|
|
77,092
|
|
|
25,337
|
Goodwill
|
|
139,082
|
|
|
80,216
|
Other
assets
|
|
47,642
|
|
|
25,065
|
Total
assets
|
$
|
770,248
|
|
$
|
459,700
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Current portion of
long-term debt
|
$
|
9,007
|
|
$
|
12,280
|
Accounts
payable
|
|
75,689
|
|
|
31,587
|
Accrued compensation
and benefits
|
|
50,351
|
|
|
42,662
|
Accrued
warranty
|
|
12,807
|
|
|
10,584
|
Deferred revenue,
net
|
|
130,865
|
|
|
79,048
|
Other accrued
liabilities
|
|
81,153
|
|
|
37,044
|
Total current
liabilities
|
|
359,872
|
|
|
213,205
|
Deferred revenue,
less current portion
|
|
43,660
|
|
|
25,293
|
Long-term debt, less
current portion
|
|
188,749
|
|
|
80,422
|
Deferred income
taxes
|
|
6,135
|
|
|
6,576
|
Other long-term
liabilities
|
|
59,100
|
|
|
8,526
|
Commitments and
contingencies
|
|
|
|
|
|
Stockholders'
equity
|
|
112,732
|
|
|
125,678
|
Total liabilities and
stockholders' equity
|
$
|
770,248
|
|
$
|
459,700
|
EXTREME NETWORKS,
INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(In thousands, except
per share amounts)
|
(Unaudited)
|
|
|
Three Months
Ended
|
|
Year
Ended
|
|
June 30,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
(As
adjusted)
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
221,304
|
|
$
|
140,956
|
|
$
|
764,455
|
|
$
|
460,425
|
Service
|
|
56,996
|
|
|
37,951
|
|
|
218,687
|
|
|
146,659
|
Total net
revenues
|
|
278,300
|
|
|
178,907
|
|
|
983,142
|
|
|
607,084
|
Cost of
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
104,060
|
|
|
61,070
|
|
|
357,062
|
|
|
220,221
|
Service
|
|
24,073
|
|
|
15,222
|
|
|
91,563
|
|
|
55,906
|
Total cost of
revenues
|
|
128,133
|
|
|
76,292
|
|
|
448,625
|
|
|
276,127
|
Gross
profit:
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
117,244
|
|
|
79,886
|
|
|
407,393
|
|
|
240,204
|
Service
|
|
32,923
|
|
|
22,729
|
|
|
127,124
|
|
|
90,753
|
Total gross
profit
|
|
150,167
|
|
|
102,615
|
|
|
534,517
|
|
|
330,957
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
52,765
|
|
|
26,721
|
|
|
183,877
|
|
|
93,724
|
Sales and
marketing
|
|
73,647
|
|
|
45,952
|
|
|
267,107
|
|
|
162,626
|
General and
administrative
|
|
15,427
|
|
|
10,568
|
|
|
50,988
|
|
|
37,864
|
Acquisition and
integration costs, net of bargain purchase gain
|
|
6,225
|
|
|
3,197
|
|
|
53,900
|
|
|
13,105
|
Restructuring and
related charges, net of reversals
|
|
3,220
|
|
|
(676)
|
|
|
8,140
|
|
|
8,896
|
Amortization of
intangibles
|
|
2,254
|
|
|
1,192
|
|
|
8,715
|
|
|
8,702
|
Total operating
expenses
|
|
153,538
|
|
|
86,954
|
|
|
572,727
|
|
|
324,917
|
Operating income
(loss)
|
|
(3,371)
|
|
|
15,661
|
|
|
(38,210)
|
|
|
6,040
|
Interest
income
|
|
743
|
|
|
315
|
|
|
2,847
|
|
|
689
|
Interest
expense
|
|
(5,160)
|
|
|
(1,086)
|
|
|
(13,923)
|
|
|
(4,086)
|
Other income
(expense), net
|
|
514
|
|
|
(598)
|
|
|
2,639
|
|
|
(47)
|
Income (loss) before
income taxes
|
|
(7,274)
|
|
|
14,292
|
|
|
(46,647)
|
|
|
2,596
|
Provision for income
taxes
|
|
(1,642)
|
|
|
1,088
|
|
|
145
|
|
|
4,340
|
Net income
(loss)
|
$
|
(5,632)
|
|
$
|
13,204
|
|
$
|
(46,792)
|
|
$
|
(1,744)
|
Basic and diluted net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
share - basic
|
$
|
(0.05)
|
|
$
|
0.12
|
|
$
|
(0.41)
|
|
$
|
(0.02)
|
Net income (loss) per
share - diluted
|
$
|
(0.05)
|
|
$
|
0.12
|
|
$
|
(0.41)
|
|
$
|
(0.02)
|
Shares used in per
share calculation - basic
|
|
115,962
|
|
|
110,500
|
|
|
114,221
|
|
|
108,273
|
Shares used in per
share calculation - diluted
|
|
115,962
|
|
|
114,524
|
|
|
114,221
|
|
|
108,273
|
EXTREME NETWORKS,
INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(In
thousands)
|
(Unaudited)
|
|
|
Year
Ended
|
|
June 30,
2018
|
|
June 30,
2017
|
|
|
|
|
(As
adjusted)
|
Cash flows from
operating activities:
|
|
|
|
|
|
Net loss
|
$
|
(46,792)
|
|
$
|
(1,744)
|
Adjustments to
reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
Depreciation
|
|
23,471
|
|
|
10,618
|
Amortization of
intangible assets
|
|
25,585
|
|
|
15,722
|
Provision for doubtful
accounts
|
|
1,687
|
|
|
335
|
Stock-based
compensation
|
|
27,633
|
|
|
12,633
|
Deferred income
taxes
|
|
(4,677)
|
|
|
1,995
|
Non-cash restructuring
and related charges
|
|
-
|
|
|
1,031
|
Realized gain on sale
of investments
|
|
(3,967)
|
|
|
-
|
Realized gain on
bargain purchase
|
|
(5,030)
|
|
|
-
|
Loss on extinguishment
of debt
|
|
1,173
|
|
|
-
|
Other non-cash
charges
|
|
5,933
|
|
|
1,339
|
Changes in operating
assets and liabilities, net of acquisitions
|
|
|
|
|
|
Accounts
receivable
|
|
(69,518)
|
|
|
(13,951)
|
Inventories
|
|
17,343
|
|
|
7,413
|
Prepaid expenses and
other assets
|
|
(8,014)
|
|
|
7,717
|
Accounts
payable
|
|
18,844
|
|
|
2,064
|
Accrued compensation
and benefits
|
|
4,981
|
|
|
13,058
|
Deferred
revenue
|
|
28,366
|
|
|
(4,677)
|
Other current and
long-term liabilities
|
|
2,025
|
|
|
5,730
|
Net cash provided by
operating activities
|
$
|
19,043
|
|
$
|
59,283
|
Cash flows from
investing activities:
|
|
|
|
|
|
Capital
expenditures
|
|
(40,411)
|
|
|
(10,425)
|
Business
acquisitions
|
|
(97,581)
|
|
|
(51,088)
|
Deposits related to an
acquisition
|
|
-
|
|
|
(10,239)
|
Proceeds from sale of
investments
|
|
5,521
|
|
|
-
|
Net cash used in
investing activities
|
|
(132,471)
|
|
|
(71,752)
|
Cash flows from
financing activities:
|
|
|
|
|
|
Borrowings under
Revolving Facility
|
|
10,000
|
|
|
-
|
Borrowings under Term
Loan
|
|
290,000
|
|
|
48,250
|
Loan fees on
borrowings
|
|
(3,211)
|
|
|
(10,038)
|
Repayments of
debt
|
|
(193,713)
|
|
|
(1,326)
|
Proceeds from issuance
of common stock, net of tax withholding
|
|
3,341
|
|
|
11,822
|
Payments of contingent
consideration
|
|
(671)
|
|
|
-
|
Deferred payments on
an acquisition
|
|
(1,000)
|
|
|
-
|
Net cash provided by
(used in) financing activities
|
|
104,746
|
|
|
48,708
|
Foreign currency
effect on cash
|
|
(629)
|
|
|
89
|
Net (decrease)
increase in cash and cash equivalents
|
|
(9,311)
|
|
|
36,328
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period
|
|
130,450
|
|
|
94,122
|
Cash and cash
equivalents at end of period
|
$
|
121,139
|
|
$
|
130,450
|
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 expenses, contingent
consideration liability, executive transition costs, litigation,
amortization of acquired intangibles, other income, interest
expense 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
expenses, contingent consideration liability, executive transition
costs, litigation, other income, interest expense 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.
Remeasurement of contingent consideration
liability. Remeasurement of contingent consideration
liability related to the Data Center business
acquisition.
Executive transition expenses. Executive transition
expenses consist 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 investments.
Interest expense. Interest expense consists of the loss
related to the debt extinguishment that occurred in conjunction
with the new credit facility in May
2018 and noncash interest expense accretion related to the
Data Center business acquisition contingent consideration
liability.
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 and
a tax benefit resulting from the restructuring of our foreign
operations in Q4.
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
|
|
Year
Ended
|
|
|
June 30,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
(As
adjusted)
|
|
Revenue - GAAP
Basis
|
$
|
278,300
|
|
$
|
178,907
|
|
$
|
983,142
|
|
$
|
607,084
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
133
|
|
Revenue - Non-GAAP
Basis
|
$
|
278,300
|
|
$
|
178,907
|
|
$
|
983,142
|
|
$
|
607,217
|
|
|
|
Non-GAAP Gross
Margin
|
Three Months
Ended
|
|
Year
Ended
|
|
|
June 30,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
(As
adjusted)
|
|
Gross profit - GAAP
Basis
|
$
|
150,167
|
|
$
|
102,615
|
|
$
|
534,517
|
|
$
|
330,957
|
|
Gross margin - GAAP
Basis percentage
|
|
54.0
|
%
|
|
57.4
|
%
|
|
54.4
|
%
|
|
54.5
|
%
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
523
|
|
|
185
|
|
|
1,695
|
|
|
922
|
|
Purchase accounting
adjustments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
133
|
|
Acquired inventory
adjustments
|
|
494
|
|
|
-
|
|
|
5,278
|
|
|
4,263
|
|
Acquisition and
integration costs
|
|
3,626
|
|
|
(579)
|
|
|
11,212
|
|
|
4,525
|
|
Amortization of
intangibles
|
|
5,481
|
|
|
633
|
|
|
16,590
|
|
|
6,661
|
|
Gross profit -
Non-GAAP Basis
|
$
|
160,291
|
|
$
|
102,854
|
|
$
|
569,292
|
|
$
|
347,461
|
|
Gross margin -
Non-GAAP Basis percentage
|
|
57.6
|
%
|
|
57.5
|
%
|
|
57.9
|
%
|
|
57.2
|
%
|
|
|
Non-GAAP Operating
Income
|
Three Months
Ended
|
|
Year
Ended
|
|
|
June 30,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
(As
adjusted)
|
|
GAAP operating income
(loss)
|
$
|
(3,371)
|
|
$
|
15,661
|
|
$
|
(38,210)
|
|
$
|
6,040
|
|
GAAP operating income
(loss) percentage
|
|
(1.2)
|
%
|
|
8.8
|
%
|
|
(3.9)
|
%
|
|
1.0
|
%
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
7,987
|
|
|
3,304
|
|
|
27,633
|
|
|
12,633
|
|
Acquisition and
integration costs, net of bargain purchase gain
|
|
9,851
|
|
|
2,618
|
|
|
65,112
|
|
|
17,630
|
|
Restructuring charge,
net of reversal
|
|
3,220
|
|
|
(676)
|
|
|
8,140
|
|
|
8,896
|
|
Acquired inventory
adjustments
|
|
494
|
|
|
-
|
|
|
5,278
|
|
|
4,263
|
|
Amortization of
intangibles
|
|
7,735
|
|
|
1,825
|
|
|
25,305
|
|
|
15,363
|
|
Purchase accounting
adjustments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
133
|
|
Remeasurement of
contingent consideration liability
|
|
1,470
|
|
|
-
|
|
|
1,470
|
|
|
-
|
|
Executive transition
costs
|
|
-
|
|
|
-
|
|
|
-
|
|
|
34
|
|
Litigation
|
|
-
|
|
|
166
|
|
|
(158)
|
|
|
385
|
|
Total adjustments to
GAAP operating income (loss)
|
$
|
30,757
|
|
$
|
7,237
|
|
$
|
132,780
|
|
$
|
59,337
|
|
Non-GAAP operating
income
|
$
|
27,386
|
|
$
|
22,898
|
|
$
|
94,570
|
|
$
|
65,377
|
|
Non-GAAP operating
income percentage
|
|
9.8
|
%
|
|
12.8
|
%
|
|
9.6
|
%
|
|
10.8
|
%
|
|
|
Non-GAAP Net
Income
|
Three Months
Ended
|
|
Year
Ended
|
|
|
June 30,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
|
|
|
|
|
(As
adjusted)
|
|
|
|
|
(As
adjusted)
|
|
GAAP net income
(loss)
|
$
|
(5,632)
|
|
$
|
13,204
|
|
$
|
(46,792)
|
|
$
|
(1,744)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
7,987
|
|
|
3,304
|
|
|
27,633
|
|
|
12,633
|
|
Acquisition and
integration costs, net of bargain purchase gain
|
|
9,851
|
|
|
2,618
|
|
|
65,112
|
|
|
17,630
|
|
Restructuring charge,
net of reversal
|
|
3,220
|
|
|
(676)
|
|
|
8,140
|
|
|
8,896
|
|
Acquired inventory
adjustments
|
|
494
|
|
|
-
|
|
|
5,278
|
|
|
4,263
|
|
Amortization of
intangibles
|
|
7,735
|
|
|
1,825
|
|
|
25,305
|
|
|
15,363
|
|
Purchase accounting
adjustments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
133
|
|
Remeasurement of
contingent consideration liability
|
|
1,470
|
|
|
-
|
|
|
1,470
|
|
|
-
|
|
Executive transition
costs
|
|
-
|
|
|
-
|
|
|
-
|
|
|
34
|
|
Litigation
|
|
-
|
|
|
166
|
|
|
(158)
|
|
|
385
|
|
Interest
expense
|
|
1,366
|
|
|
-
|
|
|
1,366
|
|
|
-
|
|
Loss on extinguishment
of debt
|
|
1,173
|
|
|
-
|
|
|
1,173
|
|
|
-
|
|
Gain on sale of
investments
|
|
(210)
|
|
|
-
|
|
|
(3,967)
|
|
|
-
|
|
Income
taxes
|
|
(3,430)
|
|
|
-
|
|
|
(6,532)
|
|
|
-
|
|
Total adjustments to
GAAP net income (loss)
|
$
|
29,656
|
|
$
|
7,237
|
|
$
|
124,820
|
|
$
|
59,337
|
|
Non-GAAP net
income
|
$
|
24,024
|
|
$
|
20,441
|
|
$
|
78,028
|
|
$
|
57,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP diluted net
income per share
|
$
|
0.20
|
|
$
|
0.18
|
|
$
|
0.65
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
diluted net income per share calculation
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP shares
used
|
|
120,361
|
|
|
114,524
|
|
|
119,781
|
|
|
111,472
|
|
|
|
Free Cash
Flow
|
Three Months
Ended
|
|
Year
Ended
|
|
|
June 30,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
|
Cash flow provided by
operations
|
$
|
20,773
|
|
$
|
15,322
|
|
$
|
19,043
|
|
$
|
59,283
|
|
Less: Capital
expenditures
|
|
(18,412)
|
|
$
|
(2,593)
|
|
|
(40,411)
|
|
|
(10,425)
|
|
Total free cash
flow
|
$
|
2,361
|
|
$
|
12,729
|
|
$
|
(21,368)
|
|
$
|
48,858
|
|
For more
information, contact:
|
|
|
|
|
|
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-fourth-quarter-and-fiscal-year-2018-financial-results-300693747.html
SOURCE Extreme Networks, Inc.