Extreme Networks Provides Business Update Regarding COVID-19
Q3 2020 Earnings Outlook Update
Because of the impact of COVID-19 on its business, Extreme now expects to report revenue for Q3 2020 of approximately
COVID-19 Related Impact to Demand and Supply Chain
Revenue was impacted by a material slow-down in global demand in the last three weeks of March when most of Extreme's largest end markets enacted quarantine and social distancing protocols. Supply constraints, along with additional logistics related challenges in certain countries due to border closures, also contributed to the shortfall.
Network technology remains critical and essential infrastructure for our customers and partners, however opportunities are being pushed out from a timing perspective.
At this time, Extreme's manufacturing supply chain is operating at approximately 90% capacity in its Asian facilities and 70% in its non-Asian facilities, up from 40% in late February. The Company expects to be near 100% capacity by mid-May.
Actions Being Taken to Reduce Operating Costs and Enhance Financial Flexibility
Extreme has already implemented actions to manage and reduce operating costs and further enhance its financial flexibility in Q3, including:
- Tightening control on discretionary spending, hiring and working capital;
- Drawing down
$55 million of its$75 million revolving credit facility onMarch 24, 2020 ; - Implementing interest rate swap contracts on slightly more than half of the outstanding Term Loan A debt principal (
$370 million ) to take advantage of lower LIBOR rates; - Seeking a waiver of the covenants pertaining to its Term Loan A due 2024 from its lenders group through
July 31, 2020 , which was unanimously approved onApril 7 .
Heading into Fiscal Q4 2020 and given the uncertainty around the timing of the recovery of the Enterprise Networking market, Extreme plans to take additional actions in April and May, including:
- A set of temporary cost reduction measures and continued restriction on all discretionary expenses, including postponing marketing programs and non-strategic capital expenditure plans;
- The acceleration of actions the company was planning to take to improve R&D and Sales productivity, along with cost reductions in Supply Chain and Operations;
- Working with its lenders, led by Bank of Montreal, on adjustments to the covenants pertaining to its Term Loan A beyond
July 31, 2020 .
Extreme will provide more information on its third fiscal quarter earnings results and the actions announced today and will discuss its Q4 and longer-term financial outlook when it reports its third quarter results on
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About
Forward-Looking Statements
Statements in this press release, including statements regarding the company's supply chain and the potential impact of COVID-19 disruptions to the supply chain, 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, further supply chain-related or other impacts of COVID-19, the market price of the company's stock prevailing from time to time, the company's cash flows from operations, general economic conditions, and other factors discussed under Item 1A. "Risk Factors," in the company's Annual Report on Form 10-K, Quarterly Report on Form 10-Q and other reports filed with the
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SOURCE
Investor Relations and Press Contacts: Stan Kovler, Vice President, Corporate Strategy & Investor Relations, Extreme Networks, 919-595-4196, skovler@extremenetworks.com, Christi Nicolacopoulos, Director, External Communications, Extreme Networks, 603-952-5005, cnicolacopoulos@extremenetworks.com