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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 25, 2011
 
 
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 No.)
 
(I.R.S. Employer Identification No.)
 
3585 Monroe Street
Santa Clara, California 95051
 
(Address of principal executive offices)
 
Registrant's telephone number, including area code:
(408) 579-2800
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

1

 

Item 2.02. Results of Operations and Financial Condition
On January 31, 2011, Extreme Networks, Inc. issued a press release announcing certain financial results for the quarter ended December 26, 2010. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference in its entirety.
The information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 to this Current Report on Form 8-K, shall not be deemed to be “filed” for purposes of Section  18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. The information contained in this Item 2.02 and in the accompanying Exhibit 99.1 shall not be incorporated by reference into any registration statement or other document filed by Extreme Networks with the Securities and Exchange Commission, whether made before or after the date of this Current Report, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference to this Item and Exhibit 99.1 in such filing.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Equity Grants to Executive Officers
The Compensation Committee of the Board of Directors of Extreme Networks, Inc. (“Extreme Networks ”) approved awards of options to purchase common stock (“Options”) and restricted stock units (“RSU”) to members of Extre me Networks' management, including the executive officers set forth in the below table.
The awards of the Options and the RSUs will be made under Extreme Networks' 2005 Equity Incentive Plan. Each Option award vests over four years following the date of grant at a rate of 25% upon the first anniversary of the date of grant  with the balance vesting in equal monthly installments over the remaining vesting term, subject to the officer's continued employment with Extreme Networks.  Each RSU award vests 50% on the first anniversary of the grant date of the RSU and 50% on the second anniversary of the date of grant of the RSU, subject to the officer's continued employment with Extreme Networks. The grant date for the Options and RSUs will be the February 2, 2011, and the exercise price per share of each of the Options will be the closing sale price of our common stock o n the NASDAQ Global Select Market at the close of business on February 2, 2011.
 
The following table sets forth the maximum number of Options and RSUs that may be earned by each executive officer:
Officer
Title
Options
RSUs
Bob Corey
Senior Vice President and Chief Financial Officer
80,000
26,400
Suresh Gopalakris hnan
Vice President of Engineering
40,000
13,200
Mike Seaton
Vice President Worldwide Sales and Service
65,000
21,450
 
Item 5.03.     Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year End
On January 25, 2011 our Board of Directors approved a change in the Company's fiscal year end from a 52-53 week year ending on the Sunday closest to June 30 to a quarterly month end, with the new fiscal year ending on June 30 of each year, such that the current fiscal year will conclude on June 30, 2011.
Item 9.01    Financial Statements and Exhibits
(d) Exhibits.
 
99.1
 
Press Release dated January 31, 2011 announcing the financial results of Extreme Networks, Inc. for the quarter ended December 26, 2010.
 
 
 
 
 
 

2

 

 
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: January 31, 2011
 
EXTREME NETWORKS, INC.
 
By:
 /s/ Bob L. Corey
 
 
 
Bob L. Corey
 
Executive Vice President and Chief Financial Of ficer
 
 
 
 
 
 
 

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WebFilings | EDGAR view
 

 
Exhibit 99.1
 
For more information, contact:
Extreme Networks
Investor Relations                        Public Relations
408/579-3030                            408/579-3483
investor_relations@extremenetworks.com            gcross@extremenetworks.com
 
 
EXTREME NETWORKS REPORTS Q2 IN LINE WITH PREVIOUS GUIDANCE
Product Revenue Increased 9 Percent Year over Year
 
SANTA CLARA, Calif.; January 31, 2011 - Extreme Networks, Inc. (Nasdaq: EXTR) today announced financial results for its 2011 fiscal second quarter end ed December 26, 2010. For the quarter, total net revenue increased seven percent to $85.1 million, as compared to $79.4 million in the second quarter last year. Previously issued guidance to investors was for net revenue of $85-$88 million.
 
“Both EMEA and APAC posted solid performance, again this quarter,” said Oscar Rodriguez, President & CEO of Extreme Networks. “Product revenue in North America increased about 8 percent over Q2 last year, but did not improve from Q1 as we had expected. We have just appointed a new vice president of NA Sales and have reorganized North America to provide improved customer focus.”
 
Rodriguez continued, “We have completed a review of our Company strategy. While we will continue to serve the broader Enterprise Campus, Data Center and Service Provider markets, we will specifically focus our efforts and resources on identified high-growth verticals within those broader markets. As a result, we believe this will enable us to grow revenue in high-growth vertical markets. Further, aimed at continuing to improve financial performance, during mid January, we took actions to reduce headcount by approximately 35 employees or roughly 5% of worldwide headcount. This action will result in a restructuring charge in Q3 between $1.0 million to $1.5 million. Additionally, we have initiated cost reduction programs aimed at driving additional efficiencies thro ughout the Company. We believe these actions are targeted to expand gross margins and accelerate our ability to reach our stated target of double-digit operating income. Going forward, we believe these actions will lower our operating expense by up to $2 million per quarter and $8 million annually.”
 
Second quarter non-GAAP operating income was $5.3 million or 6.2% percent of net revenue, representing a significant improvement as compared to operating income of $4.2 million or 5.3% of net revenue in the second quarter last year. Non-GAAP operating income in the 2011 fiscal first quarter was $4.6 million or 5.5 percent of net revenue.
 
In the second quarter the Company reported non-GAAP net income of $5.1 million or $0.06 per diluted share. That compares to a non-GAAP net income of $4.8 million or $0.05 per diluted share in the second quarter last year, and to non-GAAP net income of $4.8 million or $0.05 per diluted share in the 2011 fiscal first quarter. Non-GAAP financial results exclude the impact of stock-based compensation, restructuring charges and litigation settlements. A reconciliation of GAAP to non-GAAP financial measures is included in the accompanying financial tables.
 
 

 

 

 
Operating income on a GAAP basis was $9.1 million for the quarter, representing a significant improvement as compared to an operating loss of $2.0 million for the second quarter of last year. The second quarter this year benefited from the net favorable impact of $4.2 million in litigation settlements. In the second quarter last year, operating income included a restructuring charge of $4.1 million. Reported operating income was $2.5 million in the 2011 fiscal first quarter.
 
Net income on a GAAP basis for quarter was $8.9 million or $0.10 per diluted share, including the net favorable impact of $4.2 in litigation settlements. That compares to a net loss of $1.4 million or $0.02 loss per diluted share in the second quarter last year, including the impact of the restructuring charge of $4.1 million. In the 2011 fiscal first quarter, net income on a GAAP basis was $2.7 million or $0.03 per diluted share.
 
For the quarter, total net revenue in North America was $28.0 million, revenue in EMEA was $40.0 million, and revenue in APAC was $17.1 million. That compares to revenue of $27.5 million in North America, $37.8 million in EMEA, and $14.1 million in APAC a year-ago.
 
Total cash and investments increased $6.0 million from the first quarter to $141.7 million and the Company has no long-term debt. Cash and investments were favorably impacted by the collection of $3.8 million cash related to the settlement on property litigation and positive cash flow from operations.
 
2011 Fiscal Third Quarter non-GAAP Financial Guidance
For its 2011 fi scal third quarter ending March 27, 2011, the Company currently expects net revenue to be in a range of $82-$85 million and non-GAAP net income, before a charge related to the realignment of our strategy, of $0.05 to $0.08 per diluted share. In conjunction with the realignment of our strategy we anticipate to write-off assets between $4.0 million to $4.5 million or $0.04 to $0.05 per diluted share.
 
Conference Call and Slide Presentation
Extreme Networks will host a conference call to discuss these results to day at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). The conference call may be heard by dialing 1-877-303-9826 (international callers dial 1-224-357-2194). A 7-day replay will be available following the call by dialing 1-800-642-1687 (international callers dial 1-706-645-9291). The conference call passcode is 35088115. In addition, a live webcast and replay of the call will be available at http://investor.extremenetworks.com. 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.
 
Non-GAAP Financial Meas ures
Extreme Networks provides all financial information required in accordance with generally accepted accounting principles (GAAP). To supplement our consolidated financial statements presented in accordance with GAAP, we are also providing with this press release non-GAAP net income/(loss), non-GAAP operating income/(loss) and non-GAAP earnings/(loss) per diluted share. In preparing our non-GAAP information, we have excluded, where applicable, the impact of restructuring charges, share-based compensation and litigation settlements. We believe that excluding these items 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 these items in order to more readily correlate the Company's operating activities with the Company's ability to generate cash from operations. 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 prese nted in accordance with GAAP. We have provided a non-GAAP reconciliation of the Condensed Consolidated Statement of Operations for the periods presented in this release, which are adjusted to exclude restructuring charges, share-based compensation expense and litigation settlements for these periods. 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 provides converged Ethernet network infrastructures that support data, voice and video for enterprises and service providers. The company's network solutions feature high performance, high availability and scalable switching solutions that enable organizations to address real-world communications challenges and opportunities. Operating in more than 50 countries, Extreme Networks provides wired and wireless secure LANs, data center infrastructure and Service Provider Ethernet transport solutions that are complemented by global, 24x7 service and support. For more information, visit: http://www.extremenetworks.com
 
Extreme Networks is either a trademark or registered trademark of Extreme Networks, Inc. in the United States and/or other cou ntries.
 
# # #
 
This announcement contains forward-looking statements, including our guidance regarding future results, that involve risks and uncertainties, including statements regarding the Company's expectations regarding financial performance and product introduction. 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: a challenging macro-economic environment both in the United States and overseas; fluctuations in demand fo r the Company's products and services; a highly competitive business environment for network switching equipment; the Company's effectiveness in controlling expenses, the possibility that the Company might experience delays in the development of new technology and products; customer response to its new technology and products; the timing of any recovery in the global economy; risks related to pending or future litigation, and a dependency on third parties for certain components and for the manufacturing of the Company's products. The Company undertakes no obligation to update the forward-looking information in this release. More information about potential factors that could affect the Company's business and financial results is included in its 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 are on file with the Se curities and Exchange Commission.”
 
 
 
 
 
 

 

 

EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
< tr>< td style="vertical-align:bottom;border-bottom:1px solid #000000;">
 
 
December 26,
2010
 
June 27,
2010
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
46,878
 
 
$
51,944
 
Short-term investments
43,625
 
 
64,854
 
Accounts r eceivable, net
46,820
 
 
42,057
 
Inventories, net
24,218
 
 
21,842
 
Deferred income taxes
338
 
 
392
 
Prepaid expenses and other current assets, net
7,944
 
 
3,932
 
Total current assets
169,823
 
 
185,021
 
Property and equipment, net
42,722
 
 
43,572
 
Marketable securities
51,182
 
 
18,561
 
Other assets, net
15,572
 
 
15,731
 
Total assets
$
279,299
 
 
$
262,885
 
LIABILITIES A ND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
16,109
 
 
$
18,543
 
Accrued compensation and benefits
17,751
 
 
16,305
 
Restructuring liabilities
1,693
 
 
3,097
 
Accrued warranty
2,811
 
 
3,169
 
Deferred revenue, net
32,982
 
 
29,552
 
Deferred revenue, net of cost of sales to distributors
17,106
 
 
18,345
 
Other accrued liabilities
18,608
 
13,381
 
Total current liabilities
107,060
 
 
102,392
 
Restructuring liabilities, less current portion
 
 
273
 
Deferred revenue, less current portion
7,145
 
 
7,633
 
Deferred income taxes
108
 
 
731
 
Other long- term liabilities
56
 
 
2,661
 
Stockholders’ equity:
 
 
 
Convertible preferred stock, $.001 par value, issuable in series, 2,000,000 shares authorized; none issued
 
 
 
Common stock, $.001 par value, 750,000,000 shares authorized; 130,881,110 issued at December 26, 2010 and 129,827,715 at June 27, 2010
131
 
 
130
 
Treasury stock, 39,625,305 at December 26, 2010 and June 27, 2010
(149,666
)
 
(149,666
)
Additional paid-in-capital
959,530
 
 
956,792
 
Accumulated other comprehensive income
2,455
 
 
1,100
 
Accumulated deficit
(647,520
)
 
(659,161
)
Total stockholders’ equity
164,930
 
 
149,195
 
Total liabilities and stockholders’ equity
$
279,299
 
 
$
262,885
 
 ___________________________
 
 
 

 

 < /div>

 
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
 
  
Three Months Ended
 
Six Months Ended
 
December  ;26,
2010
 
December 27,
2009
 
December 26,
2010
 
December 27,
2009
Net revenues:
 
 
 
 
 
 
 
Product
$
70,334
 
 
$
64,4 69
 
 
$
139,547
 
 
$
115,228
 
Service
14,797
 
 
14,928
 
 
29,421
 
 
30,478
 
Total net revenues
85,131
 
 
79,397
 
 
168,968
 
 
145,706
 
Cost of revenues:
 
 
  ;
 
 
 
 
Product
30,893
 
 
27,199
 
 
61,723
 
 
50,917
 
Service
6,257
 
 
6,435
 
 
12,428
 
 
12,267
 
Total cost of revenues
37,150
 
 
33,634
 
 
74,151
 
 
63,184
 
Gross profit:
 
 
 
 
 
 
 
Product
39,441
 
 
37,270
 
 
77,824
 
 
64,311
 
Service
8,540
 
 
8,493
 
 
16,993
 
 
18,211
 
Total gros s profit
47,981
 
 
45,763
 
 
94,817
 
 
82,522
 
Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
25,087
 
 
24,613
 
 
49,993
< font style="font-family:inherit;font-size:10pt;"> 
 
46,282
 
Research and development
12,028
 
 
12,444
 
 
24,889
 
 
26,055
 
General and administrative
5,963
 
 
6,521
 
 
12,548
 
 
13,765
 
Restructuring charge, net of reversal
 
 
4,145
 
 
 
 
3,633
 
       Litigation settlement
(4,200
)
 
 
 
(4,200
)
 
 
Total operating expenses
38,878
 
 
47,723
 
 
83,230
 
 
89,735
 
Operating income (loss)
9,103
 
 
(1,960
)
 
11,587
 
 
(7,212
)
Interest income
332
 
 
388
 
 
661
 
 
710
 
Interest expense
(29
)
 
(30
)
 
(59
)
 
(69
)
Other expense
117
 
 
(40
)
 
(158
)
 
(117
)
Income (loss) before income taxes
9,523
 
 
(1,642
)
 
12,031
 
 
(6,688
)
Provision for income taxes
594
 
 
(263
)
 
390
 
 
173
 
Net income (loss)
$
8,929
 
 
$
(1,379
)
 
$
11,641
 
 
$
(6,861
)
Basic and diluted net income (loss) per share:
 
 
 
 
 
 
 
Net income (loss) per share - basic
$
0.10
 
 
$
(0.02
)
 
$
0.13
 
 
$< /div>
(0.08
)
Net income (loss) per share - diluted
$
0.10
 
 
$
(0.02
)
 
$
0.13
 
 
$
(0.08
)
Shares used in per share calculation - basic
90,878
 
 
89,059
 
 
90,592
 
 
88,951
 
Shares used in per share calculation - diluted
91,274
 
 
89,059
 
 
90,942
 
 
88,951
 
 
 
 
 
 
 

 

 

EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 

 

 

 
 
Six Months Ended
 
December 26,
2010
 
December 27,
2009
Cash flows from operating activities:
 
 
 
Net income (loss)
$
11,641
 
 
$
(6,861
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
Depreciation and amortization
3,148
 
 
3,023
 
Change in value / loss on value of UBS option to put securities
2,429
 
 
47
 
Auction rate securities mark to market, trading gain
(2,429
)
 
(47
)
Provision for doubtful accounts
30
 
 
 
Excess and obsolete inventory
(100
)
 
960
 
Deferred income taxes
(569
)
 
(69
)
Loss on retirement of assets
109
 
 
78
 
Stock-based compensation
2,485
 
 
3,158
 
Restructuring charge, net of reversal
 
 
3,633
 
Changes in operating assets and liabilities, net
 
 
 
Accounts receivable
(4,793
)
 
(2,982
)
Inventories
(2,294
)
 
(5,216
)
Prepaid expenses and other assets
(3,855
)
 
(3
)
Accounts payable
(2,434
)
 
9,410
 
Accrued compensation and benefits
1,447
 
 
(689
)
Restructuring liabilities
(1,677
)
 
(4,418
)
Accrued warranty
(359
)
 
< font style="font-family:inherit;font-size:10pt;">60
 
Deferred revenue, net
2,943
 
 
1,231
 
Deferred revenue, net of cost of sales to distributors
(1,239
)
 
6,365
 
Other accrued liabilities
6,576
 
 
2,156
 
Other long-term liabilities
(2,605
)
 
(1
)
Net cash provided by operating activities
8,454
 
 
9,835
 
Cash flows used in investing activities:
 
 
 
Capital expenditures
(2,407
)
 
(2,720
)
Purchases of investments
(70,147
)
 
(18,958
)
Proceeds from maturities of investments and marketable securities
11,800
 
 
8,775
 
Proceeds from sales of investments and marketable securities
46,961
 
 
6,377
 
Net cash used in investing activities
(13,793
)
 
(6,526
)
Cash flows provided by financing activities:
 
 
 
Proceeds from issuance of common stock
273
 
 
397
 
Net cash provided by financing activities
273
 
 
397
 
Net increase (decrease) in cash and cash equivalents
(5,066
)
 
3,706
 
Cash and cash equivalents at beginning of period
51,944
 
 
49,233
 
Cash and cash equivalents at end of period
$
46,878
 
 
$
52,939
 
 
 
 
 

 

 

EXTREME NETWORKS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
(In thousands, except per share amounts)
(Unaudited)
 

 

 

(3,850
 
Three Months Ended
 
Six Months Ended
 
December 26, 2010
 
December 27, 2009
 
December 26, 2010
 
December 27, 2009
NET INCOME (LOSS)
 
 
 
 
 
 
 
Net income (loss)- GAAP Basis
$
8,929
 
 
$
(1,379
)< /font>
 
$
11,641
 
 
$
(6,861
)
 < /div>
 
 
 
 
 
 
 
Non-GAAP adjustments
 
 
 
 
 
 
 
Stock-based compensation expense
$
350
 
 
$
2,030
 
 
$
2,466
 
 
$
3,166
 
Litigation settlement
$
(4,200
)
 
$
 
 
$
(4,200
)
 
$
 
Restructuring charge, net of reversal
$
 
 
$
4,145
 
 
$
 
 
$
3,633
 
Total Non-GAAP adjustments
$< /div>
(3,850
)
 
$
6,175
 
 
$
(1,734
)
 
$
6,799
 
Net income (loss) - Non-GAAP Basis
$
5,079
 
 
$
4,796
 
 
$
9,907
 
 
$
(62
)
 
 
 
 
 
 
 
 
NON-GAAP ADJUSTMENTS
 
 
 
 
 
 
 
     Cost of product revenue
$
15
 
 
$
155
 
 
$
214
 
 
$
223
 
     Cost of service revenue
5
 
 
146
 
 
149
 
 
221
 
     Sales and marketing
388
 
 
683
 
 
960
 
 
979
 
     Research and development
(118
)
 
611
 
 
493
 
 
986
 
< /td>
     General and administrative
60
 
 
435
 
 
650
 
 
757
 
     Litigation settlement
(4,200
)
 
 
 
(4,200
)
 
< font style="font-family:inherit;font-size:10pt;"> 
     Restructuring charge, net of reversal
 
 
4,145
 
 
 
 
3,633
 
     Total non-GAAP adjustments
$
)
 
$
6,175
 
 
$
(1,734
)
 
$
6,799