UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 6, 2003
EXTREME NETWORKS, INC.
(Exact name of registrant as specified in its charter)
| Delaware |
000-25711 |
77-0430270 | ||
| (State or other jurisdiction of
incorporation) |
(Commission File Number) |
(IRS Employer Identification
No.) |
3585 Monroe Street
Santa Clara, California 95051
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (408) 579-2800
Not Applicable
(Former name or former address, if changed since last report)
Item 5. Other Events.
On January 6, 2003, Extreme Networks, Inc. (“Extreme”) issued a press release and held a conference call regarding its financial
results for the period ending December 29, 2002. Extreme made forward-looking statements regarding 2003 in both the press release and the conference call. A copy of the press release that Extreme issued regarding its second quarter financial
results, together with the forward-looking statements relating to 2003, is filed herewith as Exhibit 99.1. In addition, the text of the forward-looking disclosures regarding 2003 that Extreme made in the conference call is filed herewith as Exhibit
99.2. Both exhibits are incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
| Exhibit No. |
Description | |
| 99.1 |
Press release dated January 6, 2003 regarding Extreme’s financial results for the quarter ended December 29, 2002 and forward-looking statements
relating to 2003. | |
| 99.2 |
Certain forward-looking comments made by Extreme during its conference call on January 6, 2003. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
| EXTREME NETWORKS, INC. | ||||||||
| Date: |
January 7, 2003 |
By: |
/s/ HAROLD L. COVERT | |||||
| Harold L. Covert Chief Financial Officer | ||||||||
EXHIBIT INDEX
| Exhibit No. |
Description | |
| 99.1 |
Press release dated January 6, 2003 regarding Extreme’s financial results for the quarter ended December 29, 2002 and forward-looking statements
relating to 2003. | |
| 99.2 |
Certain forward-looking comments made by Extreme during its conference call on January 6, 2003. |
EXHIBIT 99.1
Extreme Networks Reports Q2 FY’03 Financial Results
SANTA CLARA, Calif.,
Jan. 6/PRNewswire-FirstCall/ — Extreme Networks, Inc., (Nasdaq: EXTR—News), a leader in Ethernet broadband networking solutions, today announced financial results for the second fiscal quarter ended Dec. 29, 2002.
Net revenue for the second quarter of fiscal 2003 was $90.2 million, compared to $100.6 million for the first quarter of fiscal 2003.
Including special charges and deferred compensation totaling $28.6 million, the Company reported a net loss of $19.7 million or $0.17 per share for the second quarter of fiscal 2003, compared to a net loss of $4.7 million or $0.04 per share for the
first quarter of fiscal 2003. Before special charges and deferred compensation was recorded during the quarter, the Company had a loss of $2.8 million compared to a loss of $3.1 million for the first quarter of fiscal 2003.
“Although the worldwide climate remains challenging, we are not satisfied with this quarter’s results and are committed to strong results
independent of external factors,” said Gordon Stitt, Extreme Networks president and CEO. “During the past several quarters, we have implemented a number of programs that are beginning to show results and are planned to have a positive
impact on our financial performance. One such area of focus is management of our supply chain where we are now experiencing lower overall costs.”
“In addition, we continue to expand our customer base by forming strategic partnerships with other worldwide market leading companies,” added Stitt. “We are also maintaining our strong investment in technology
development, and this year our new technology introduction plan includes our third generation family of ASICs and innovative software, all ideally suited for the advanced networking applications being deployed today and planned for tomorrow. Our
ongoing technology developments enable Extreme to offer valuable customer-focused networking solutions that allows for a lower total cost of ownership with superior performance and in turn will drive our market growth.”
Conference Call
Extreme Networks will host a
conference call to discuss these results at 2:30 p.m. PT, for more information visit http://www.extremenetworks.com/aboutus/investor/
Extreme Networks, Inc.
Extreme Networks delivers the most effective applications and services infrastructure by creating
networks that are faster, simpler and more cost-effective. Headquartered in Santa Clara, Calif., Extreme Networks markets its network switching solutions in more than 50 countries. For more information, visit www.extremenetworks.com.
NOTE: Extreme Networks is a trademark of Extreme Networks, Inc., in the United States and other countries.
This announcement contains forward-looking statements that involve risks and uncertainties, including
statements about achieving our strategic and financial goals, and other statements that include “expect,” “anticipate” or words of similar intent. 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: (i) a limited operating history and limited history of profitability that make it more difficult to predict results; (ii) current economic trends in worldwide geographic
markets; (iii) the effectiveness of our cost reduction efforts; (iv) fluctuations in demand for our products and services; (v) a highly competitive business environment for network switching equipment; (vi) the possibility that we might experience
delays in the development of new technology and products, and (vii) a dependency on third parties for certain components and for the manufacturing of our products. More information about potential factors that could affect our business and financial
results is included in our Annual Report on Form 10-K for the year ended June 30, 2002, 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 (http://www.sec.gov).
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
(Unaudited)
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| Dec. 31, 2002 |
Dec. 31, 2001 |
Dec. 31, 2002 |
Dec. 31, 2001 |
|||||||||||||
| Net revenue |
$ |
90,216 |
|
$ |
109,066 |
|
$ |
190,785 |
|
$ |
217,355 |
| ||||
| Costs and expenses: |
||||||||||||||||
| Cost of revenue |
|
44,926 |
|
|
51,450 |
|
|
96,425 |
|
|
134,762 |
| ||||
| Sales, marketing and service |
|
30,397 |
|
|
35,703 |
|
|
63,650 |
|
|
72,688 |
| ||||
| Research and development |
|
13,418 |
|
|
14,604 |
|
|
27,927 |
|
|
31,015 |
| ||||
| General and administrative |
|
6,729 |
|
|
5,974 |
|
|
13,664 |
|
|
14,087 |
| ||||
| Amortization of deferred stock compensation |
|
1,783 |
|
|
2,655 |
|
|
3,784 |
|
|
5,528 |
| ||||
| Amortization of goodwill and purchased intangible assets |
|
— |
|
|
12,580 |
|
|
— |
|
|
24,433 |
| ||||
| Restructuring charge |
|
14,187 |
|
|
— |
|
|
14,187 |
|
|
— |
| ||||
| Property and equipment write-off |
|
12,678 |
|
|
— |
|
|
12,678 |
|
|
— |
| ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
| Total costs and expenses |
|
124,118 |
|
|
122,966 |
|
|
232,315 |
|
|
282,513 |
| ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
| Operating loss |
|
(33,902 |
) |
|
(13,900 |
) |
|
(41,530 |
) |
|
(65,158 |
) | ||||
| Other income (expense), net |
|
990 |
|
|
1,701 |
|
|
1,870 |
|
|
(1,877 |
) | ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
| Loss before income taxes |
|
(32,912 |
) |
|
(12,199 |
) |
|
(39,660 |
) |
|
(67,035 |
) | ||||
| Benefit for income taxes |
|
(13,173 |
) |
|
(1,547 |
) |
|
(15,190 |
) |
|
(20,375 |
) | ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
| Net loss |
$ |
(19,739 |
) |
$ |
(10,652 |
) |
$ |
(24,470 |
) |
$ |
(46,660 |
) | ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
| Net loss per share—basic and diluted |
$ |
(0.17 |
) |
$ |
(0.09 |
) |
$ |
(0.22 |
) |
$ |
(0.42 |
) | ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
| Shares used in per share calculation—basic and diluted |
|
114,819 |
|
|
112,680 |
|
|
113,409 |
|
|
112,317 |
| ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| Dec. 31, 2002 |
June 30, 2002 | |||||
| Assets |
||||||
| Current assets: |
||||||
| Cash, cash equivalents and investments |
$ |
194,920 |
$ |
236,497 | ||
| Accounts receivable, net |
|
21,729 |
|
51,344 | ||
| Inventories, net |
|
28,039 |
|
24,627 | ||
| Deferred income taxes |
|
42,891 |
|
42,882 | ||
| Other current assets |
|
12,437 |
|
13,126 | ||
| |
|
|
| |||
| Total current assets |
|
300,016 |
|
368,476 | ||
| Property and equipment, net |
|
82,282 |
|
99,551 | ||
| Marketable securities |
|
210,990 |
|
163,560 | ||
| Deferred income taxes |
|
105,817 |
|
90,617 | ||
| Other assets |
|
16,042 |
|
13,547 | ||
| |
|
|
| |||
| Total assets |
$ |
715,147 |
$ |
735,751 | ||
| |
|
|
| |||
| Liabilities and stockholders’ equity |
||||||
| Current liabilities: |
||||||
| Accounts payable |
$ |
22,331 |
$ |
29,215 | ||
| Deferred revenue |
|
43,493 |
|
40,772 | ||
| Accrued warranty |
|
10,211 |
|
9,055 | ||
| Other accrued liabilities |
|
67,303 |
|
67,479 | ||
| |
|
|
| |||
| Total current liabilities |
|
143,338 |
|
146,521 | ||
| Convertible subordinated notes and other long-term deposit |
|
200,272 |
|
200,272 | ||
| Total stockholders’ equity |
|
371,537 |
|
388,958 | ||
| |
|
|
| |||
| Total liabilities and stockholders’ equity |
$ |
715,147 |
$ |
735,751 | ||
| |
|
|
| |||
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended |
||||||||
| Dec. 31, 2002 |
Dec. 31, 2001 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ |
(24,470 |
) |
$ |
(46,660 |
) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation |
|
14,282 |
|
|
15,543 |
| ||
| Amortization of goodwill and purchased intangible assets |
|
— |
|
|
24,432 |
| ||
| Provision for doubtful accounts |
|
— |
|
|
2,700 |
| ||
| Deferred income taxes |
|
(15,209 |
) |
|
(22,144 |
) | ||
| Restructuring charge and property and equipment write-off |
|
26,865 |
|
|
— |
| ||
| Amortization of deferred stock compensation |
|
3,784 |
|
|
5,528 |
| ||
| Write-down of investments |
|
— |
|
|
6,000 |
| ||
| Compensation expense for options granted to consultants |
|
— |
|
|
420 |
| ||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
|
29,615 |
|
|
6,501 |
| ||
| Inventories |
|
(3,412 |
) |
|
12,499 |
| ||
| Other current and noncurrent assets |
|
(1,806 |
) |
|
1,015 |
| ||
| Accounts payable |
|
(6,884 |
) |
|
1,249 |
| ||
| Deferred revenue |
|
2,721 |
|
|
9,506 |
| ||
| Accrued warranty |
|
1,156 |
|
|
3,290 |
| ||
| Other accrued liabilities |
|
(12,470 |
) |
|
8,375 |
| ||
| |
|
|
|
|
| |||
| Net cash provided by operating activities |
|
14,172 |
|
|
28,254 |
| ||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
|
(11,584 |
) |
|
(20,634 |
) | ||
| Purchases and maturities of investments, net |
|
(40,966 |
) |
|
(7,378 |
) | ||
| Acquisition of business |
|
— |
|
|
(14,910 |
) | ||
| |
|
|
|
|
| |||
| Net cash used in investing activities |
|
(52,550 |
) |
|
(42,922 |
) | ||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock |
|
2,025 |
|
|
6,578 |
| ||
| Proceeds from issuance of convertible subordinated notes, net |
|
— |
|
|
193,899 |
| ||
| Net cash provided by financing activities |
|
2,025 |
|
|
200,477 |
| ||
| Net increase (decrease) in cash and cash equivalents |
|
(36,353 |
) |
|
185,809 |
| ||
| Cash and cash equivalents at beginning of period |
|
71,830 |
|
|
87,722 |
| ||
| |
|
|
|
|
| |||
| Cash and cash equivalents at end of period |
$ |
35,477 |
|
$ |
273,531 |
| ||
| |
|
|
|
|
| |||
EXHIBIT 99.2
The following disclosures contain forward-looking statements that involve risks and uncertainties, including statements about Extreme’s expense trends, gross margins and new product introductions,
and other statements that include “expect” or words of similar intent. Actual results could differ materially from those projected in the forward-looking statements. You should consult the risk factors in our filings with the SEC for a
discussion of some of the risks that could affect our actual results.
Forward-Looking Disclosures Made by Extreme Networks, Inc.
During Conference Call Held on January 6, 2003
The
following are forward-looking disclosures regarding 2003 that Extreme made in its conference call held on January 6, 2003.
• |
The $9.6 million real estate charge relates to excess real estate that was first reported in the third quarter of fiscal 2002. During that quarter which ended
on March 31, 2002, a charge of $25.4 million was recorded for excess real estate. The commercial real estate market has continued to deteriorate since the initial charge was taken necessitating an increase in reserves that take the unfavorable
difference between lease obligation payments and projected sublease receipts into consideration. |
• |
During the second quarter of fiscal 2003, the company completed a fixed asset inventory as part of our recent new ERP system implementation. The new ERP system
enables the tracking of fixed assets by cost center and responsible manager. The fixed asset inventory resulted in the identification of $14.6 million of fixed assets that the company will no longer carry on our balance sheet or that we have
determined are impaired. The assets that we will no longer carry on our balance sheet all have an initial individual acquisition price under $3,000. |
• |
Going forward the new ERP system and related business practices along with tightening payback and return on investment criteria for capital expenditures will
enhance management’s capability to monitor fixed asset utilization and control capital expenditures. |
• |
As part of the goal to lower our breakeven point the company reduced its staff and temporary personnel by approximately 10 percent or 100 people during the
second quarter of fiscal 2003. A charge of $2.7 million for severance expense was recorded as part of this process. |
• |
Continued improvement in supply chain management has and will continue to result in lower product costs. During the second quarter of fiscal 2003, these savings
were approximately $2.5 million. Of the $2.5 million, approximately half lowered the carrying value of inventory as of the end of the quarter and the remaining half reduced cost of goods sold during the quarter. |
• |
With gross margin of approximately 53 to 54 percent and our cost structure as we enter the third quarter of fiscal 2003, our breakeven point is approximately
$90 million of quarterly revenue. However, in the near term gross margin in the 53 to 54 percent range may not be achievable. |
• |
As a result of the uncertain global macro economic environment in general and in particular in the technology sector we will not provide any specific financial
guidance. We believe that the current business environment is not likely to dramatically change in the near term therefore we have adjusted our operating model to take this view into consideration. Although we are not providing any specific
financial guidance we would like to make the following comments: |
* We are in the
process of enhancing our current product families with new products that we expect to begin shipping in the second calendar quarter of 2003 and planning the rollout of a new family of products in the second half of calendar 2003. In both cases,
these new products will be based on new chip-sets including advanced software functionality. We expect that revenue growth will resume as we introduce these new products. In addition as the global economic environment improves and our sales
productivity programs continue to progress we expect to see a positive impact on revenue generation.
* Looking at gross margin we have achieved and expect to continue to achieve improvements in supply chain management. However, while modular product pricing appears to be fairly stable in terms of historical trends and
will likely remain in that mode, stackable product pricing has become more competitive and will likely continue that pattern. Going forward the favorable impact on gross margin from supply chain management improvements may be offset by the decline
in stackable products gross margin and unfavorable geographic gross margin contribution levels until our new products begin shipping.
• |
With the recent reduction in our operating expenses and capital expenditures and continued effective management of working capital we believe that we will
generate free cash flow going forward. |
• |
Two years ago we began development of our third generation ASIC chip set and simultaneously set up an independent team to develop fourth generation technology.
We are pleased to say that our third generation technology will ship in products during the first half of calendar year 2003. This technology brings a number of benefits including high density, new functionality, including advanced traffic shaping,
hardware acceleration for additional functions, integrated support for voice over IP and other functional enhancements. We have designed this new chip set and our products to provide a seamless and non-disruptive upgrade path for existing customers.
These new products support and enhance our value proposition for both existing and new customers. |
• |
At the same time as we embarked on our third generation ASIC chip set, we also began developing a revolutionary new ASIC chip set that is focused on the Metro
Ethernet technology. This technology, which we will introduce in the second half of this year, is a major leap forward and we believe will deliver revenue growth for more than five years. The products based on this fourth generation technology will
complement our current product families and will primarily be focused on the very largest enterprises and Ethernet metro service providers. By employing leading technology this new product family will dramatically improve performance and
functionality and continue to position the company as a technology leader. |