Extreme Networks Reports Fourth Quarter Financial Results: Annual Revenue up 6% with Improved Gross Margins
Net income on a GAAP basis was $0.8 million or $0.01 per diluted share, compared to a net loss of $5.0 million or a loss of $0.04 per diluted share in the year-ago quarter.
Non-GAAP net income for the fiscal fourth quarter of 2008, excluding $1.3 million in stock-based compensation charges and a $0.9 million change in estimate related to our prior restructuring accruals, was $3.0 million or $0.03 per diluted share. That compares to year-ago non-GAAP net income of $0.3 million or $0.00 per diluted share, excluding $1.2 million in stock-based compensation charges, $1.3 million related to the special investigation into historical stock option grants, and $2.9 million in restructuring charges.
For the fiscal year ended June 29, 2008, net revenue was $361.8 million, up 6% from $342.8 million for the prior fiscal year. GAAP net income was $8.4 million or $0.07 per diluted share, compared to a GAAP net loss of $14.2 million or a loss of $0.12 per diluted share in fiscal 2007. Non-GAAP net income was $14.3 million or $0.12 per diluted share, compared to non-GAAP net income of $2.9 million or $0.03 per diluted share in fiscal 2007. A reconciliation of GAAP to non-GAAP financial measures is included in the accompanying financial tables.
“With revenue up 13% for the quarter and 6% for the year, we continue to gain momentum with our channels and end users,” said Mark Canepa, president and CEO of Extreme Networks. “Our newer products are being particularly well received in our chosen markets, where there is healthy demand for innovative solutions that scale to meet our customers’ evolving needs.”
For the fiscal fourth quarter of 2008, revenues in North America (U.S., Canada, and Central America) were $45.1 million, revenues in EMEA (Europe, Middle East, Africa, and South America) were $38.8 million, and revenues in Asia (Asia Pacific and Japan) were $14.4 million. That compares to year-ago revenues of $41.5 million in North America, $33.4 million in EMEA, and $12.2 million in Asia.
Cash, short-term investments, and marketable securities were $225.7 million as of June 29, 2008, compared to $231.1 million as of March 30, 2008.
Conference Call
Extreme Networks will host a conference call to discuss these results today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). A live webcast and replay of the call will be available at http://www.extremenetworks.com/about-extreme/investor-relations.aspx. Financial information to be discussed during the conference call is posted on the Investor Relations section of the Company's website (www.extremenetworks.com).
Balance Sheet Reclassification
During the quarter, the company reclassified its balance sheet presentation of various accounts related to its sales to distributors. This reclassification more closely aligns to its financial “rights and obligations” related to dealings with its distribution channel. This is a reclassification of information previously disclosed in regulatory filings and does not have any impact on the company’s revenue recognition. The company’s prior period balance sheets have been reclassified to conform to its current presentation. The company has included the prior quarter reclassified balance sheet in the current press release in order to assist in identifying the changes we made. Specifically, the company reclassified the following three items:
- Cash receivables from distributors have been reclassified from “prepaid expenses and other current assets, net” to “accounts receivable, net;”
- Deferred revenue associated with distributors has been reclassified from “prepaid expenses and other current assets, net” to “deferred revenue, net of cost of sales to distributors;” and
- Inventory owned by distributors has been reclassified from “inventories, net” to “deferred revenue, net of cost of sales to distributors,” as an offset to the related deferred revenue, in effect leaving a deferred margin within current liabilities.
Non-GAAP Financial Measures
Extreme Networks provides all financial information required in accordance with generally accepted accounting principles (GAAP). To supplement its consolidated financial statements presented in accordance with GAAP, we are also providing with this press release non-GAAP net income and non-GAAP net income per share information. In preparing our non-GAAP information, we have excluded, where applicable, stock compensation (a non-cash charge), costs associated with our special investigation into our historical stock option grants (a non-recurring charge), and the impact of restructuring charges (a non-recurring charge). Because of the non-recurring or infrequent nature and/or non-cash nature of these charges, we believe that excluding them provides both management and investors with additional insight into our current operations, the trends affecting the Company and the Company’s marketplace performance. In particular, management finds it useful to exclude the non-cash charges in order to more readily correlate the Company’s operating activities with the Company’s ability to generate cash from operations, and excludes the non-recurring and infrequently incurred cash items as a means of more accurately predicting liquidity requirements. Accordingly, management uses these non-GAAP measures, along with the comparable GAAP information, in evaluating our historical performance and in planning our future business activities. Please note that our non-GAAP measures may be different than those used by other companies. The additional non-GAAP financial information we present should be considered in conjunction with, and not as a substitute for, our financial information presented in accordance with GAAP. We have provided a non-GAAP reconciliation of the Consolidated Statement of Operations for the fiscal quarters and 12 months ended June 29, 2008 and July 1, 2007, which are adjusted to exclude share-based compensation expense, costs associated with our special investigation into our historical stock option grants and restructuring charges. 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.
Extreme Networks, Inc.
Extreme Networks designs, builds and installs Ethernet infrastructure solutions that solve the toughest business communications challenges. The Company’s commitment to open networking sets it apart from the alternatives by delivering meaningful insight and unprecedented control to applications and services. Extreme Networks believes openness is the best foundation for growth, freedom, flexibility and choice. Extreme Networks focuses on enterprises and service providers who demand high performance, converged networks that support voice, video and data over a wired and wireless infrastructure. For more information, visit: www.extremenetworks.com.
Extreme Networks and the Extreme Networks logo are either registered trademarks or trademarks of Extreme Networks, Inc. in the United States and other countries. All other trademarks are the property of their respective owners.
This announcement contains forward-looking statements that involve risks and uncertainties, including statements regarding acceptance of our newer products in the market and our expectations regarding our products. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including, but not limited to: fluctuations in demand for our products and services; a highly competitive business environment for network switching equipment, our effectiveness in controlling expenses, the possibility that we might experience delays in the development 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 litigations, and a dependency on third parties for certain components and for the manufacturing of our products. We undertake no obligation to update the forward-looking information in this release. More information about potential factors that could affect our business and financial results is included in our 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,” which is on file with the Securities and Exchange Commission.”
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
|
| June 29, 2008 |
| March 30, 2008 (unaudited)(2) |
| July 1, 2007 (1)(2) |
| ASSETS |
|
|
|
|
|
| Current assets: |
|
|
|
|
|
| Cash and cash equivalents | $ 70,370 |
| $ 71,886 |
| $ 71,573 |
| Short-term investments | 42,922 |
| 48,092 |
| 91,599 |
| Accounts receivable, net | 64,417 |
| 48,690 |
| 46,420 |
| Inventories, net | 13,942 |
| 14,447 |
| 21,681 |
| Deferred income taxes | 254 |
| 400 |
| 1,118 |
| Prepaid expenses and other current assets, net | 4,654 |
| 5,856 |
| 5,189 |
| Total current assets | 196,559 |
| 189,371 |
| 237,580 |
| Property and equipment, net | 43,348 |
| 41,579 |
| 43,156 |
| Marketable securities | 112,380 |
| 111,077 |
| 52,683 |
| Other assets, net | 13,474 |
| 14,811 |
| 20,102 |
|
|
|
|
|
|
|
| TOTAL ASSETS | $365,761 |
| $356,838 |
| $353,521 |
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
| Accounts payable | $ 16,921 |
| $ 11,793 |
| $ 21,303 |
| Accrued compensation and benefits | 18,956 |
| 18,074 |
| 14,841 |
| Restructuring liabilities | 2,612 |
| 2,751 |
| 5,532 |
| Accrued warranty | 4,824 |
| 5,053 |
| 7,182 |
| Deferred revenue, net | 31,284 |
| 32,312 |
| 31,797 |
| Deferred revenue, net of cost | 14,138 |
| 13,002 |
| 11,987 |
| Other accrued liabilities | 27,728 |
| 23,127 |
| 23,263 |
| Total current liabilities | 116,463 |
| 106,112 |
| 115,905 |
| Restructuring liabilities, less current portion | 6,777 |
| 6,410 |
| 8,456 |
| Deferred revenue, less current portion | 9,006 |
| 9,465 |
| 10,286 |
| Deferred income taxes | 403 |
| 390 |
| 688 |
| Other long-term liabilities | 1,058 |
| 1,169 |
| 1,961 |
| Commitments and contingencies |
|
|
|
|
|
| Stockholders' equity: |
|
|
|
|
|
| Common stock and capital in excess of par value | 943,283 |
| 941,521 |
| 934,540 |
| Treasury stock | (48,303) |
| (48,303) |
| (48,303) |
| Accumulated other comprehensive income | (723) |
| 3,049 |
| 572 |
| Accumulated deficit | (662,203) |
| (662,975) |
| (670,584) |
| Total stockholders' equity | 232,054 |
| 233,292 |
| 216,225 |
|
|
|
|
|
|
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $365,761 |
| $356,838 |
| $353,521 |
| (1) Consolidated balance sheet at July 1, 2007 has been derived from audited financial statements. | |||||
| (2) The Consolidated Balance Sheets for these periods have been reclassified to conform with the current period presentation related to our distributor business. | |||||
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
|
| Three Months Ended | Twelve Months Ended | ||
|
| June 29, | July 1, | June 29, | July 1, |
|
| 2008 | 2007 | 2008 | 2007 |
| Net revenues: |
|
| ||
| Product | $83,353 | $71,863 | $302,313 | $280,497 |
| Service | 14,960 | 15,235 | 59,522 | 62,337 |
| Total net revenues | 98,313 | 87,098 | 361,835 | 342,834 |
|
|
|
|
|
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| Cost of revenues: |
|
|
|
|
| Product | 33,911 | 31,398 | 123,333 | 124,298 |
| Service | 8,272 | 7,997 | 33,194 | 33,341 |
| Total cost of revenues | 42,183 | 39,395 | 156,527 | 157,639 |
|
|
|
|
|
|
| Gross margin: |
|
| ||
| Product | 49,442 | 40,465 | 178,980 | 156,199 |
| Services | 6,688 | 7,238 | 26,328 | 28,996 |
| Total gross margin | 56,130 | 47,703 | 205,308 | 185,195 |
|
|
|
|
|
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| Operating expenses: |
|
|
|
|
| Sales and marketing | 28,432 | 25,893 | 103,252 | 102,052 |
| Research and development | 16,112 | 17,314 | 65,335 | 67,085 |
| General and administrative | 10,931 | 8,315 | 34,655 | 33,638 |
| Restructuring charge | 893 | 2,857 | 893 | 4,003 |
| Total operating expenses | 56,368 | 54,379 | 204,135 | 206,778 |
|
|
|
|
|
|
| Operating income (loss) | (238) | (6,676) | 1,173 | (21,583) |
| Other income, net | 1,773 | 2,217 | 9,387 | 9,526 |
| Income (loss) before income taxes | 1,535 | (4,459) | 10,560 | (12,057) |
| Provision for income taxes | 762 | 586 | 2,178 | 2,140 |
| Net income (loss) | $ 773 | $(5,045) | $ 8,382 | $(14,197) |
|
|
|
|
|
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| Basic and diluted net income (loss) per share: |
|
|
|
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| Net income (loss) per share — basic | $0.01 | $(0.04) | $0.07 | $(0.12) |
| Net income (loss) per share — diluted | $0.01 | $(0.04) | $0.07 | $(0.12) |
|
|
|
|
|
|
| Shares used in per share calculation — basic | 115,944 | 113,604 | 115,002 | 114,122 |
| Shares used in per share calculation — diluted | 116,171 | 113,604 | 115,345 | 114,122 |
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| Year Ended | |||
|
| June 29, 2008 | | July 1, 2007 | |
| Cash flows from operating activities: |
|
|
|
|
| Net income (loss) | $ 8,382 | | $(14,197) | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
| |
| |
| Depreciation and amortization | 7,193 | | 7,926 | |
| Provision for doubtful accounts | 416 | | - | |
| Provision for excess and obsolete inventory | 2,172 | | 3,030 | |
| Deferred income taxes | 578 | | 64 | |
| Amortization of warrant | 1,349 | | 4,048 | |
| Restructuring charge | 893 | | 4,003 | |
| Gain (loss) on disposal of assets | 299 | | 54 | |
| Stock-based compensation | 5,059 | | 6,183 | |
| Changes in operating assets and liabilities, net |
| |
| |
| Accounts receivable | (18,413) | | (1,353) | |
| Inventories | 5,567 | | (9,492) | |
| Prepaid expenses and other assets | 5,813 | | (2,342) | |
| Accounts payable | (4,382) | | 1,165 | |
| Accrued compensation and benefits | 4,115 | | 3,083 | |
| Restructuring liabilities | (5,492) | | (7,057) | |
| Accrued warranty | (2,359) | | 155 | |
| Deferred revenue | 360 | | (279) | |
| Other accrued liabilities | 4,616 | | 4,739 | |
| Net cash provided by (used in) operating activities | 16,166 | | (270) | |
|
|
| |
| |
| Cash flows provided by (used in) investing activities: |
| |
| |
| Capital expenditures | (7,683) | | (4,637) | |
| Purchases of investments | (307,442) | | (210,711) | |
| Proceeds from maturities of investments and marketable securities | 122,063 | | 213,153 | |
| Proceeds from sales of investments and marketable securities | 172,009 | | 195,520 | |
| Net cash provided by (used in) investing activities | (21,053) | | 193,325 | |
|
|
| |
| |
| Cash flows provided by (used in) financing activities: |
| |
| |
| Proceeds from issuance of common stock, net of repurchases | 3,684 | | 523 | |
| Repurchase of common stock | - | | (14,603) | |
| Principal payment on convertible debt | - | | (200,000) | |
| Net cash used in financing activities | 3,684 | | (214,080) | |
|
|
| |
| |
| Net increase (decrease) in cash and cash equivalents | (1,203) | | (21,025) | |
| Cash and cash equivalents at beginning of period | 71,573 | | 92,598 | |
| Cash and cash equivalents at end of period | $ 70,370 | | $ 71,573 | |
|
|
| |
| |
| Supplemental disclosure of cash flow information: |
| |
| |
| Interest paid | - | | 3,500 | |
| Cash paid for income taxes, net | 996 | | 5,285 | |
|
|
| |
| |
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
(In thousands)
(Unaudited)
|
| Three Months Ended | Twelve Months Ended | ||
|
| June 29, 2008 | July 1, 2007 | June 29, 2008 | July 1, 2007 |
|
|
|
|
|
|
| Net income (loss) - GAAP Basis | $ 773 | $ (5,045) | $ 8,382 | $ (14,197) |
|
|
|
|
|
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| Non-GAAP adjustments |
|
|
|
|
| Stock-based compensation expense | $ 1,335 | $ 1,200 | $ 5,059 | $ 6,183 |
| Stock option investigation expenses | - | 1,298 | - | 6,916 |
| Restructuring charge | 893 | 2,857 | 893 | 4,003 |
| Total non-GAAP adjustments | $2,228 | $5,355 | $5,952 | $17,102 |
|
|
|
|
|
|
| Net income (loss) - Non-GAAP Basis | $ 3,001 | $ 310 | $14,334 | $ 2,905 |
|
|
|
|
|
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| Non-GAAP adjustments |
|
|
|
|
| Cost of product revenue | $ 127 | $ 184 | $ 479 | $ 771 |
| Cost of service revenue | 68 | 51 | 251 | 359 |
| Sales and Marketing | 431 | 401 | 1,656 | 2,173 |
| Research and Development | 423 | 317 | 1,554 | 1,834 |
| General and Administrative | 286 | 1,545 | 1,119 | 7,962 |
| Restructuring charge | 893 | 2,857 | 893 | 4,003 |
| Total non-GAAP adjustments | $2,228 | $5,355 | $5,952 | $17,102 |
For more information, contact:
Extreme Networks
|
Investor Relations (408) 579 3030 investor_relations@extremenetworks.com |
Public Relations Greg Cross (408) 579 3483 gcross@extremenetworks.com |