Marks Second Consecutive Year of Double-Digit
Revenue Growth
Significant Operating Leverage and GAAP EPS
Growth of 76%
Expect Continued Strong Growth in FY24
Extreme Networks, Inc. (“Extreme”) (Nasdaq: EXTR) today released
financial results for its fiscal year and fourth quarter ended June
30, 2023.
"Extreme delivered a year of exceptional performance, with
revenue growth accelerating to 31% in the fourth quarter and 18%
overall for the year," said Ed Meyercord, President and Chief
Executive Officer. "This marks our second consecutive year of
double-digit growth. We're outgrowing our competitors, gaining
share, and winning new logos, which helped drive more than 30%
growth in the value of deals over $1 million. We're breaking the
status quo of networking through product innovation with
differentiated solutions like universal hardware, end-to-end cloud
management, enhanced AI, and our unique fabric technology, which
greatly simplifies network management and bolsters security. Our
focus on simplicity, flexibility, and performance continues to fuel
our funnel of large opportunities. I remain confident in our growth
prospects and am excited about the new innovations and
opportunities we have in store for FY24 and beyond," concluded
Meyercord.
Kevin Rhodes, Executive Vice President and Chief Financial
Officer stated, "the strong topline growth we achieved in Q4 and
FY23 resulted in significant operating leverage that drove over 76%
growth in GAAP EPS. We doubled our cash generation to $235 million
in free cash flow this year, and even after repurchasing another
$100 million worth of shares, and paying down $80 million in debt,
we improved our year-end balance sheet to achieve a net cash
position. Extreme has never been in a more robust financial
position, and I am encouraged about our future prospects."
Fiscal Fourth Quarter Results:
- Revenue $363.9 million, up 31% year-over-year, and up 9%
quarter-over-quarter
- SaaS ARR $129.0 million, up 25% year-over-year, and up 10%
quarter-over-quarter
- GAAP diluted EPS $0.19, compared to $0.04 in the prior year
quarter
- Non-GAAP diluted EPS $0.33, compared to $0.15 in the prior year
quarter
- GAAP gross margin 58.9% compared to 55.4% in the prior year
quarter
- Non-GAAP gross margin 60.2% compared to 57.0% in the prior year
quarter
- GAAP operating margin 10.4 % compared to 3.8 % in the prior
year quarter
- Non-GAAP operating margin 17.4 % compared to 9.6% in the prior
year quarter
Fiscal Year 2023 Results:
- Revenue $1.3 billion, up 18% compared to $1.1 billion in fiscal
2022
- GAAP EPS $0.58, up from $0.33 in fiscal 2022
- Non-GAAP EPS $1.09, up from $0.77 in fiscal 2022
- GAAP operating margin 8.3% compared to 5.8% in fiscal 2022
- Non-GAAP operating margin 15.2% compared to 12.2% in fiscal
2022
Liquidity:
- During Q4, we generated net cash flow from operations of $80.7
million and free cash flow of $75.5 million. For the full year, we
generated net cash flow from operations of $249.2 million and free
cash flow of $235.4 million.
- During Q4, we repurchased 1.4 million shares of our common
stock on the open market at a total cost of $25.1 million with a
weighted average price of $17.32 per share. For the full year, we
repurchased 5.4 million shares for $100 million with a weighted
average price of $18.58 per share.
- Year ending cash balance was $234.8 million, an increase of
$31.8 million from the end of Q3 2023 and $40.3 million at the end
of last year.
- Year ending net cash was $9.8 million, an increase of $43.8
million from net debt of $34.0 million at Q3 2023 and an increase
of $123.9 million from net debt of $114.1 million at the end of
last year.
Recent Key Highlights:
- Customers including Norwegian Cruise Line, European
energy company E.ON and French university hospital
Charité were named as recipients of the 2023 Extreme
X-Factor Customer Awards. They were recognized for their innovative
and impactful use of Extreme solutions to help drive their
organizations forward.
- During Extreme Connect 2023 in May, the company unveiled a
series of groundbreaking networking solutions, including:
- ExtremeCloud Edge, the industry’s first networking cloud
continuum, which offers organizations increased choice and
flexibility in running networking applications, including
management, analytics, and AI, from any location.
- The AP3000, the industry's smallest and most
energy-efficient Wi-Fi 6E access point (AP)
- The 7520 and 7720 switches for enterprise core and
aggregation use cases and the 8820 switches for large data
center networks.
- Customers like Nevada Department of Transportation and
Baylor University are adopting Extreme CoPilot AIOps to
offset IT staffing shortages, reduce mean time to resolution of
network issues and help IT and network administrators access and
leverage network insights to prioritize tickets. As a result, teams
can improve service quality, expedite problem resolution, help
mitigate cyberthreats and improve time to innovation.
- Living Tomorrow Innovation Campus in Brussels selected
Extreme as its network connectivity partner and will leverage
hundreds of AP4000 Wi-Fi 6E access points (APs) to test and
demonstrate advanced technologies. The campus will also rely on
ExtremeAnalytics and ExtremeCloud IQ to optimize connectivity,
enhance guest experiences, improve security and IT productivity,
and automate daily network maintenance tasks while detecting
anomalies in network activity.
- The University of Mount Union refreshed its network with
end-to-end wired and wireless solutions from Extreme, including
Fabric and ExtremeCloud IQ CoPilot for AIOps. The new network
provides seamless, AI and Fabric powered automation and
optimization across campus, which improves IT productivity and
greatly reduces mean time to resolving network anomalies. Extreme
improves the performance of in-classroom technology like AR/VR and
4K video streaming.
- Professional sports teams including the Arizona
Diamondbacks, Philadelphia Phillies and Philadelphia Flyers are
deploying Wi-Fi 6 and 6E to help create better fan experiences,
improve amenities like digital concession signage and mobile
tickets, ensure support for future fan experiences like AR/VR and
AI applications and streamline venue operations.
Fiscal Q4 2023 and Full Year 2023 Financial Metrics:
(in millions, except percentages and per share information)
GAAP Results
Three Months Ended
Year Ended
June 30, 2023
June 30, 2022
Change
June 30, 2023
June 30, 2022
Change
Product
$
261.7
$
187.1
$
74.6
$
932.5
$
761.7
$
170.8
Service and subscription
102.2
91.1
11.1
380.0
350.6
29.4
Total net revenue
$
363.9
$
278.2
$
85.7
$
1,312.5
$
1,112.3
$
200.2
Gross margin
58.9
%
55.4
%
3.5
%
57.5
%
56.6
%
0.9
%
Operating margin
10.4
%
3.8
%
6.6
%
8.3
%
5.8
%
2.5
%
Net income
$
25.4
$
5.4
$
20.0
$
78.1
$
44.3
$
33.8
Net income per diluted share
$
0.19
$
0.04
$
0.15
$
0.58
$
0.33
$
0.25
Non-GAAP Results
Three Months Ended
Year Ended
June 30, 2023
June 30, 2022
Change
June 30, 2023
June 30, 2022
Change
Product
$
261.7
$
187.1
$
74.6
$
932.5
$
761.7
$
170.8
Service and subscription
102.2
91.1
11.1
380.0
350.6
29.4
Total net revenue
$
363.9
$
278.2
$
85.7
$
1,312.5
$
1,112.3
$
200.2
Gross margin
60.2
%
57.0
%
3.2
%
58.9
%
58.4
%
0.5
%
Operating margin
17.4
%
9.6
%
7.8
%
15.2
%
12.2
%
3.0
%
Net income
$
43.9
$
19.7
$
24.2
$
146.3
$
103.5
$
42.9
Net income per diluted share
$
0.33
$
0.15
$
0.18
$
1.09
$
0.77
$
0.32
Extreme uses the non-GAAP free cash flow metric as a measure of
operating performance. Free cash flow represents GAAP net cash
provided by operating activities, less purchases of property, plant
and equipment. Extreme considers free cash flow to be useful
information for management and investors regarding the amount of
cash generated by the business after the purchases of property,
plant 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 this
non-GAAP free cash flow metric 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. The
following table shows non-GAAP free cash flow calculation (in
millions):
Free Cash Flow
Three Months Ended
Year Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
Cash flow provided by operations
$
80.7
$
64.1
$
249.2
$
128.2
Less: Property and equipment capital
expenditures
(5.2
)
(4.3
)
(13.8
)
(15.5
)
Total free cash flow
$
75.5
$
59.8
$
235.4
$
112.7
SaaS ARR: Extreme uses SaaS annual recurring revenue
(“SaaS ARR”) to identify the annual recurring revenue of
ExtremeCloud™ IQ (XIQ) and other subscription revenue, based on the
annualized value of quarterly subscription revenue and term-based
licenses. We believe that SaaS ARR is an important metric because
it is driven by our ability to acquire new customers and to
maintain and expand our relationships with existing customers. SaaS
ARR should be viewed independently of revenue or deferred revenue
accounted under U.S. GAAP. SaaS ARR does not have a standardized
meaning and therefore may not be comparable to similarly titled
measures presented by other companies. SaaS ARR is not intended to
be a replacement for forecasts of revenue.
Gross Debt: Gross debt is defined as long-term debt and
the current portion of long-term debt as shown on the balance sheet
plus unamortized debt issuance costs, if any.
Net Cash (Debt) is defined as cash minus gross debt, as
shown in the table below (in millions):
Cash
Gross debt
Net cash (debt)
$
234.8
$
225.0
$
9.8
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 various factors, including market
conditions and the factors set forth under “Forward-Looking
Statements” below.
For its first quarter of fiscal 2024, ending September 30, 2023,
the Company is targeting:
(in millions, except percentages
and per share information)
Low-End
High-End
FQ1'24 Guidance – GAAP
Total net revenue
$
342.0
$
352.0
Gross margin
58.6
%
60.6
%
Operating margin
7.5
%
9.8
%
Net income per diluted share
$
0.12
$
0.18
Shares outstanding used in calculating
GAAP EPS
133.0
133.0
FQ1’24 Guidance – Non-GAAP
Total net revenue
$
342.0
$
352.0
Gross margin
59.5
%
61.5
%
Operating margin
15.3
%
17.6
%
Net income per diluted share
$
0.28
$
0.33
Shares outstanding used in calculating
non-GAAP EPS
133.0
133.0
The following table shows the GAAP to non-GAAP reconciliation
for Q1 FY’24 guidance:
Gross Margin Rate
Operating Margin Rate
Earnings per Share
GAAP
58.6% - 60.6%
7.5% - 9.8%
$0.12 - $0.18
Estimated adjustments for:
Share-based compensation
0.5%
5.7%
0.15
Amortization of product intangibles
0.3%
0.3%
0.01
Amortization of non-product
intangibles
0.1%
0.2%
0.01
Restructuring
—
1.0%
0.03
Litigation charges
—
0.3%
0.01
System transition cost
—
0.3%
0.01
Tax adjustment
—
—
(0.06)
Non-GAAP
59.5% - 61.5%
15.3% - 17.6%
$0.28 - $0.33
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 8:00 a.m. Eastern (5:00
a.m. Pacific) today to review the fourth quarter results of fiscal
2023 as well as the business outlook for the first quarter of
fiscal 2024 ending September 30, 2023, 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 for at least 7 days following the call.
To access the call by phone, please go to this link (Extreme
Networks Q4'23 Earnings Registration Link) and you will be provided with dial in details.
To avoid delays, we encourage participants to dial into the
conference call fifteen minutes ahead of the scheduled start
time.
About Extreme:
Extreme Networks, Inc. (EXTR) creates networking experiences
that enable all of us to advance. We push the boundaries of
technology leveraging the powers of machine learning, artificial
intelligence, analytics, and automation. Over 50,000 customers
globally trust our end-to-end, cloud-driven networking solutions
and rely on our top-rated services and support to accelerate their
digital transformation efforts and deliver progress like never
before. For more information, visit Extreme's website at
https://www.extremenetworks.com/ or LinkedIn, YouTube, Twitter,
Facebook or Instagram
Extreme Networks, ExtremeCloud, and the Extreme Networks logo,
are trademarks of Extreme Networks, Inc. or its subsidiaries in the
United States and/or other countries. Other trademarks shown herein
are the property of their respective owners.
Non-GAAP Financial Measures:
Extreme provides all financial information required in
accordance with U.S. generally accepted accounting principles
(“GAAP”). The Company is providing with this press release non-GAAP
gross margin, non-GAAP operating margin, non-GAAP operating income,
non-GAAP net income, non-GAAP net income per diluted share, net
cash (debt) and non-GAAP free cash flow. In preparing non-GAAP
information, the Company has excluded, where applicable, the impact
of share-based compensation, acquisition and integration costs,
amortization of intangibles, restructuring charges, system
transition costs, litigation charges, debt restructuring charges
and the tax effect of non-GAAP 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 uses both GAAP and non-GAAP
measures to evaluate and manage its operations.
Forward-Looking Statements:
Statements in this press release, including statements regarding
those concerning the Company’s business outlook and future
operating metrics, financial and operating results, 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. There are several important factors that could cause
actual events to differ materially from those suggested or
indicated by such forward-looking statements. These include, among
others, risks related to supply chain disruptions and component
availability; the Company’s failure to achieve targeted financial
metrics; a highly competitive business environment for network
switching equipment and cloud management of network devices; the
Company’s effectiveness in controlling expenses; the possibility
that the Company might experience delays in the development or
introduction of new technology and products; customer response to
the Company’s new technology and products; risks related to pending
or future litigation; macroeconomic and political and geopolitical
factors, including the Russia/Ukraine conflict; a dependency on
third parties for certain components and for the manufacturing of
the Company’s products; and the impacts of global business and
economic trends on the Company’s business.
More information about potential factors that could affect the
Company's business and financial results are described in
“Management's Discussion and Analysis of Financial Condition and
Results of Operations” and “Risk Factors” included in the Company’s
Annual Report on Form 10-K for the year ended June 30, 2022,
Quarterly Reports on Form 10-Q for the quarters ended September 30,
2022, December 31, 2022, and, March 31, 2023, and other documents
of the Company on file with the Securities and Exchange Commission
(available at www.sec.gov). As a result of these risks and others,
actual results could vary significantly from those anticipated in
this press release, and the Company’s financial condition and
results of operations could be materially adversely affected.
Except as required under the U.S. federal securities laws and the
rules and regulations of the U.S. Securities and Exchange
Commission, Extreme 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, except per share
amounts)
(Unaudited)
June 30, 2023
June 30, 2022
ASSETS
Current assets:
Cash
$
234,826
$
194,522
Accounts receivable, net
182,045
184,097
Inventories
89,024
49,231
Prepaid expenses and other current
assets
70,263
61,239
Total current assets
576,158
489,089
Property and equipment, net
46,448
49,578
Operating lease right-of-use assets,
net
34,739
36,454
Intangible assets, net
16,063
32,515
Goodwill
394,755
400,144
Other assets
73,544
60,730
Total assets
$
1,141,707
$
1,068,510
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Current portion of long-term debt, net of
unamortized debt issuance costs of $674 and $2,276,
respectively
$
34,326
$
33,349
Accounts payable
99,724
84,338
Accrued compensation and benefits
71,367
53,710
Accrued warranty
12,322
10,852
Current portion, operating lease
liabilities
10,847
13,956
Current portion, deferred revenue
282,475
238,262
Other accrued liabilities
64,440
65,714
Total current liabilities
575,501
500,181
Deferred revenue, less current portion
219,024
163,357
Long-term debt, less current portion, net
of unamortized debt issuance costs of $2,409 and $2,430,
respectively
187,591
270,570
Operating lease liabilities, less current
portion
31,845
33,256
Deferred income taxes
7,747
7,717
Other long-term liabilities
3,247
3,086
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $0.001 par
value, issuable in series, 2,000 shares authorized; none issued
—
—
Common stock, $0.001 par value, 750,000
shares authorized; 143,629 and 139,742 shares issued, respectively;
127,775 and 129,263 shares outstanding, respectively
144
140
Additional paid-in-capital
1,173,744
1,115,416
Accumulated other comprehensive loss
(13,192
)
(3,055
)
Accumulated deficit
(855,998
)
(934,072
)
Treasury stock at cost, 15,854 and 10,479
shares, respectively
(187,946
)
(88,086
)
Total stockholders’ equity
116,752
90,343
Total liabilities and stockholders’
equity
$
1,141,707
$
1,068,510
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except per share
amounts)
(Unaudited)
Three Months Ended
Year Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
Net revenues:
Product
$
261,675
$
187,085
$
932,454
$
761,721
Service and subscription
102,235
91,111
380,000
350,600
Total net revenues
363,910
278,196
1,312,454
1,112,321
Cost of revenues:
Product
114,030
96,103
426,295
360,562
Service and subscription
35,461
27,902
131,439
121,821
Total cost of revenues
149,491
124,005
557,734
482,383
Gross profit:
Product
147,645
90,982
506,159
401,159
Service and subscription
66,774
63,209
248,561
228,779
Total gross profit
214,419
154,191
754,720
629,938
Operating expenses:
Research and development
55,826
45,130
214,270
190,591
Sales and marketing
94,024
80,538
336,906
294,470
General and administrative
25,619
16,103
89,934
68,697
Acquisition and integration costs
—
553
390
7,009
Restructuring and related charges
540
770
2,860
1,748
Amortization of intangibles
510
639
2,047
3,235
Total operating expenses
176,519
143,733
646,407
565,750
Operating income
37,900
10,458
108,313
64,188
Interest income
1,100
110
3,155
412
Interest expense
(5,729
)
(3,039
)
(17,385
)
(12,789
)
Other income (expense), net
(119
)
86
23
383
Income before income taxes
33,152
7,615
94,106
52,194
Provision for income taxes
7,725
2,205
16,032
7,923
Net income
$
25,427
$
5,410
$
78,074
$
44,271
Basic and diluted income per share:
Net income per share – basic
$
0.20
$
0.04
$
0.60
$
0.34
Net income per share – diluted
$
0.19
$
0.04
$
0.58
$
0.33
Shares used in per share calculation –
basic
128,294
129,788
129,473
129,437
Shares used in per share calculation –
diluted
132,873
132,304
133,649
133,494
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Year Ended
June 30, 2023
June 30, 2022
Cash flows from operating
activities:
Net income
$
78,074
$
44,271
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
19,888
20,215
Amortization of intangible assets
14,988
19,946
Reduction in carrying amount of
right-of-use asset
12,248
14,929
Provision for doubtful accounts
459
29
Share-based compensation
63,472
43,362
Deferred income taxes
407
682
Non-cash interest expense
1,145
4,443
Other
(8,056
)
423
Changes in operating assets and
liabilities, net of acquisition:
Accounts receivable
1,593
(26,231
)
Inventories
(41,827
)
(16,722
)
Prepaid expenses and other assets
(1,368
)
(4,469
)
Accounts payable
14,733
23,810
Accrued compensation and benefits
17,137
(20,709
)
Operating lease liabilities
(15,219
)
(18,949
)
Deferred revenue
90,102
44,635
Other current and long-term
liabilities
1,436
(1,488
)
Net cash provided by operating
activities
249,212
128,177
Cash flows from investing
activities:
Capital expenditures
(13,800
)
(15,433
)
Business acquisition, net of cash
acquired
—
(69,517
)
Net cash used in investing activities
(13,800
)
(84,950
)
Cash flows from financing
activities:
Borrowings under Revolving Facility
25,000
—
Payments on debt obligations
(108,625
)
(38,125
)
Loan fees on borrowings
(3,158
)
—
Repurchase of common stock
(99,860
)
(44,973
)
Payments for tax withholdings, net of
proceeds from issuance of common stock
(5,140
)
(6,541
)
Payment of contingent consideration
obligations
—
(1,024
)
Deferred payments on an acquisition
(3,000
)
(4,000
)
Net cash used in financing activities
(194,783
)
(94,663
)
Foreign currency effect on cash
(325
)
(936
)
Net increase (decrease) in cash
40,304
(52,372
)
Cash at beginning of period
194,522
246,894
Cash at end of period
$
234,826
$
194,522
Extreme Networks, Inc. Non-GAAP
Measures of Financial Performance
To supplement the Company's consolidated financial statements
presented in accordance with U.S. generally accepted accounting
principles (“GAAP”), Extreme uses non-GAAP measures of certain
components of financial performance. These non-GAAP measures
include non-GAAP gross margin, non-GAAP operating margin, non-GAAP
operating income, non-GAAP net income, non-GAAP net income per
diluted share, net cash (debt) and non-GAAP 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.
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’s results of operations as
determined in accordance with GAAP. These non-GAAP measures should
only be used to evaluate Extreme’s 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 stockholder value. In addition, because Extreme 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, amortization of intangibles, restructuring
charges, system transition costs, litigation charges, debt
restructuring charges and the tax effect of non-GAAP 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. Consists of associated expenses
for stock options, restricted stock awards and the Company’s
Employee Stock Purchase Plan. Extreme 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 its operating
results. Extreme expects to incur share-based compensation expenses
in future periods.
Acquisition and integration costs. Acquisition and
integration costs consist of specified compensation charges,
software charges, and legal and professional fees related to the
acquisition of Ipanema. Extreme excludes these expenses since they
result from an event that is outside the ordinary course of
continuing operations.
Amortization of intangibles. Amortization of intangibles
includes the monthly amortization expense of intangible assets such
as developed technology, customer relationships, trademarks and
order backlog. The amortization of the developed technology and
order backlog are recorded in cost of goods sold, while the
amortization for the other intangibles is recorded in operating
expenses. Extreme excludes these 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 charges. Restructuring charges consist of
severance costs for employees, asset disposal costs and other
charges related to excess facilities that do not provide economic
benefit to our future operations. Extreme excludes restructuring
expenses since they result from events that occur outside of the
ordinary course of continuing operations.
System transition costs. System transition costs consist
of costs related to direct and incremental costs incurred in
connection with our multi-phase transition of our customer
relationship management solution and our configure, price, quote
solution. Extreme excludes these costs because we believe that
these costs do not reflect future operating expenses and will be
inconsistent in amount and frequency making it difficult to
contribute to a meaningful evaluation of our operating
performance.
Litigation charges. Litigation charges consist of
estimated settlement and related legal expenses for a non-recurring
pending litigation.
Debt refinancing charges. Debt refinancing charges
consist of the write-off of certain unamortized debt issuance costs
included on interest expense, as well as other debt refinancing
charges that were not capitalizable and are included in other
income (expense), that occurred in conjunction with the amendment
of our credit facility in June 2023.
Tax effect of non-GAAP adjustments. We calculate our
non-GAAP provision for income taxes in accordance with the SEC
guidance on non-GAAP Financial Measures Compliance and Disclosure
Interpretation. We have assumed our U.S. federal and state net
operating losses would have been fully consumed by the historical
non-GAAP financial adjustments, eliminating the need for a full
valuation allowance against our U.S. deferred tax assets which,
consequently, enables our use of research and development tax
credits. The non-GAAP tax provision consists of current and
deferred income tax expense commensurate with the non-GAAP measure
of profitability using our blended U.S. statutory tax rate of
24.6%.
The non-GAAP provision for income taxes has typically been and
is currently higher than the GAAP provision given the Company has a
valuation allowance against its US and a portion of its Irish
deferred tax assets due to historical losses. Once these valuation
allowances are released, the non-GAAP and the GAAP provision for
income taxes will be more closely aligned.
Over the next year, our cash taxes will be driven by US federal
and state taxes and the tax expense of our foreign subsidiaries
which amounts have not historically been significant, with the
exception of the Company’s Indian subsidiary which performs
research and development activities, as well as the Company’s Irish
trading subsidiaries.
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
GAAP TO NON-GAAP
RECONCILIATION
(In thousands, except percentages
and per share amounts)
(Unaudited)
Revenues
Three Months Ended
Year Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
Revenues – GAAP
$
363,910
$
278,196
$
1,312,454
$
1,112,321
Non-GAAP Gross Margin
Three Months Ended
Year Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
Gross profit – GAAP
$
214,419
$
154,191
$
754,720
$
629,938
Gross margin – GAAP percentage
58.9
%
55.4
%
57.5
%
56.6
%
Adjustments:
Share-based compensation expense,
Product
491
281
1,856
1,186
Share-based compensation expense, Services
and subscription
945
365
3,513
1,421
Amortization of intangibles, Product
2,230
2,804
9,611
13,381
Amortization of intangibles, Service and
subscription
815
815
3,258
3,259
Total adjustments to GAAP gross profit
$
4,481
$
4,265
$
18,238
$
19,247
Gross profit – non-GAAP
$
218,900
$
158,456
$
772,958
$
649,185
Gross margin – non-GAAP percentage
60.2
%
57.0
%
58.9
%
58.4
%
Non-GAAP Operating Income
Three Months Ended
Year Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
GAAP operating income
$
37,900
$
10,458
$
108,313
$
64,188
GAAP operating income percentage
10.4
%
3.8
%
8.3
%
5.8
%
Adjustments:
Share-based compensation expense, cost of
revenues
1,436
646
5,369
2,607
Share-based compensation expense,
R&D
3,889
2,427
14,824
9,995
Share-based compensation expense,
S&M
5,924
3,733
22,250
15,000
Share-based compensation expense,
G&A
5,662
3,925
21,029
15,760
Acquisition and integration costs
—
553
390
7,009
Restructuring charges
540
770
2,860
1,748
Litigation charges
4,022
—
8,026
—
System transition costs
467
—
957
—
Amortization of intangibles
3,555
4,258
14,916
19,875
Total adjustments to GAAP operating
income
25,495
16,312
90,621
71,994
Non-GAAP operating income
$
63,395
$
26,770
$
198,934
$
136,182
Non-GAAP operating income percentage
17.4
%
9.6
%
15.2
%
12.2
%
Non-GAAP Net Income
Three Months Ended
Year Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
GAAP net income
$
25,427
$
5,410
$
78,074
$
44,271
Adjustments:
Share-based compensation expense
16,911
10,731
63,472
43,362
Acquisition and integration costs
—
553
390
7,009
Restructuring charge, net of reversal
540
770
2,860
1,748
Litigation charges
4,022
—
8,026
—
System transition costs
467
—
957
—
Amortization of intangibles
3,555
4,258
14,916
19,875
Debt refinancing charges, Interest
expense
1,346
—
1,346
—
Debt refinancing charges, Other income
(expense)
197
—
197
—
Tax effect of non-GAAP adjustments
(8,574
)
(2,074
)
(23,933
)
(12,814
)
Total adjustments to GAAP net income
$
18,464
$
14,238
$
68,231
$
59,180
Non-GAAP net income
$
43,891
$
19,648
$
146,305
$
103,451
Earnings per share
GAAP net income per share – diluted
$
0.19
$
0.04
$
0.58
$
0.33
Non-GAAP net income per share –
diluted
$
0.33
$
0.15
$
1.09
$
0.77
Shares used in net income per share –
diluted:
GAAP Shares used in per share calculation
– basic
128,294
129,788
129,473
129,437
Potentially dilutive equity awards
4,579
2,516
4,176
4,057
GAAP and Non-GAAP shares used in per share
calculation – diluted
132,873
132,304
133,649
133,494
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version on businesswire.com: https://www.businesswire.com/news/home/20230802190203/en/
For more information, contact:
Investor Relations Stan Kovler 919/595-4196
Investor_relations@extremenetworks.com
Media Contact Amy Aylward 603/952-5138
pr@extremenetworks.com
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