extr-8k_20210728.htm
false 0001078271 0001078271 2021-07-28 2021-07-28

 

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): July 28, 2021

 

EXTREME NETWORKS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

 

 

Delaware

 

001-40423

 

77-0430270

(State or other jurisdiction

of incorporation)

 

(Commission

File No.)

 

(I.R.S. Employer

Identification No.)

 

6480 Via Del Oro

San Jose, California 95119

(Address of principal executive offices)

Registrant's telephone number, including area code:

(408579-2800

 

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:

 

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))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

EXTR

 

NASDAQ Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 


 

Item 2.02 Results of Operations and Financial Condition

On July 28, 2021, Extreme Networks, Inc. (the “Company”) issued a press release announcing certain financial results for the quarter ended June 30, 2021. A copy of the press release is furnished as Exhibit 99.1 to this report.

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 the Company 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 2.02 and Exhibit 99.1 in such filing.

 

 

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.

 

           99.1

 

Press Release dated July 28, 2021.

           104     Cover Page Interactive Data File (embedded within the Inline XBRL document)


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: July 28, 2021

 

EXTREME NETWORKS, INC.

 

 

 

By:

 

/s/ REMI THOMAS

 

 

Remi Thomas

 

 

Executive Vice President, Chief Financial Officer (Principal Accounting Officer)

 

extr-ex991_6.htm

Exhibit 99.1

 

For more information, contact:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investor Relations

 

 

 

Media Contact

 

Stan Kovler

 

 

 

Christi Nicolacopoulos

919/595-4196

 

 

 

603/952-5005

 

Investor_relations@extremenetworks.com

 

 

 

pr@extremenetworks.com

 

Extreme Networks Reports Fourth Quarter and Full Fiscal Year 2021 Financial Results

Industry leadership in enterprise cloud-driven networking drives market share gains highlighted by record revenue and free cash flow

 

SAN JOSE, Calif., July 28, 2021 -- Extreme Networks, Inc. (“Extreme”) (Nasdaq: EXTR) today released financial results for its fourth fiscal quarter and fiscal year ended June 30, 2021.   

 

Fiscal Fourth Quarter Results:  

 

 

Revenue $278.1 million, up 29% year-over-year and up 10% quarter-over-quarter

 

GAAP EPS $0.08, up from ($0.18) in Q4 last year

 

Non-GAAP EPS $0.19, up from $0.03 in Q4 last year

 

GAAP gross margin 57.9% compared to 56.0% in Q4 last year

 

Non-GAAP gross margin 60.5% compared to 59.4% in Q4 last year  

 

GAAP operating margin 6.3% compared to (6.1)% in Q4 last year

 

Non-GAAP operating margin 13.4% compared to 5.2% in Q4 last year

 

Net cash provided by operating activities of $57.0 million

 

Free Cash Flow of $52.2 million

 

Fiscal Year 2021 Results:  

 

Revenue $1,009.4 million, up 6% compared to $948.0 million in fiscal 2020

 

GAAP operating margin 3.4% compared to (10.4)% in fiscal 2020

 

Non-GAAP operating margin 10.9% compared to 4.3% in fiscal 2020

 

Free Cash Flow of $127.4 million

“Demand for our enterprise solutions is unprecedented, as momentum in our business built through the fiscal year and culminated in 36% year-over-year bookings growth in Q4. Our record setting revenue of over $1 billion for the fiscal year is even more meaningful considering we tripled product backlog during the period. And, the fact that our cloud new subscription bookings grew 111% year-over-year is a proof point that we’re taking share in the fastest growing segment of the networking industry, solidifying our #2 market share position,” stated Ed Meyercord, President and CEO of Extreme.

“Our innovative and industry-leading solutions for both the Infinite Enterprise and for 5G cloud-native network infrastructure are resonating with customers and creating significant growth opportunities for Extreme. During Q4 we extended our technology differentiation with the most successful product launch in our most recent history with the 5420 universal hardware platform, the 9920 next-gen packet broker, and the release of Extreme CoPilot, our Explainable-AI tool. And just yesterday, we announced that we

 


 

are the first in the industry to ship game-changing Wi-Fi 6E access points to customers,” concluded Meyercord.

“Extreme has never been in a stronger financial position. With record non-GAAP operating margins and $127.4 million in free cash flow generated during FY21, our net debt position fell to just under $100 million. In Q4, we navigated a unique environment of rising demand, but also rising supply chain constraints, leading to results that are a testament to our focus on driving operational excellence,” stated Rémi Thomas, CFO of Extreme.  

“The current environment of supply chain constraints has created record backlog and added incremental costs that will continue to increase into the September quarter. Importantly, we have secured vendor commitments that will allow us to accelerate product delivery and bring down backlog as of Q2 and beyond. As a result, we are confident in guiding FY22 revenue towards the high-end of our 5% to 9% long-term growth target, with double-digit operating income margins and significant free cash flow growth,” concluded Thomas.

 

Recent Key Highlights:

 

Extreme is first in the industry to ship enterprise-grade Wi-Fi 6E access points. TheAP4000 universal wireless platform is the most advanced Wi-Fi 6E solution in the market with industry-leading cloud management and capable of operating in the new 6 GHz frequency band. AP4000 will enable multi-gigabit, low latency connections and new use cases for high-reliability customer experiences, eliminating downtime and reducing risk of data and privacy vulnerabilities for high-density environments, such sports and entertainment, schools, warehouses, and healthcare facilities.

 

In June 2021, Extreme provided automated access to our explainable artificial intelligence/ machine learning insights tool, “CoPilot,” within the ExtremeCloud IQ platform. CoPilot was launched with anomalous threat detection, the ability to reduce false alarms, and troubleshooting capabilities for IT professionals tasked with managing complex, often highly distributed, networks. New features will be added in fiscal Q2 and we expect CoPilot to become a billable license in the second half of FY22.

 

Extreme introduced the 9920 intelligent next generation packet broker for service provider networks. The platform delivers high-speed throughput at 12.8 Tbps for detailed data insights and provides the flexibility to adapt for future network enhancements so service providers can quickly respond to new user demands and 5G use cases. It is based on the Intel Tofino™ 2 programmable ASIC, providing a massively scalable architecture that easily integrates with existing service provider environments and can quickly adapt to new use cases.

 

A report from 650 Group identified Extreme as the second leading vendor in the cloud-managed network services market, with more market share than the third and fourth ranked vendors combined in CY20. Extreme also significantly outpaced the market, delivering 101%

 


 

 

revenue growth year over year from 2019 to 2020 while the overall market experienced 28% revenue growth during that same period.

 

Wynn Resorts, a developer and operator of luxury hotels and casinos with locations in Las Vegas, Boston, Macau, and Cotai, selected Extreme to deploy a next-generation Fabric network across its Las Vegas location, and a separate fabric-based network for audio visual (A/V) system management. By standardizing on Extreme, Wynn can simplify device on-boarding and management across properties and deliver a secure, dedicated connection for bandwidth-intensive A/V equipment.

 

Retailer Colruyt Group, which operates 619 stores and supplies over 580 independent shops throughout Belgium, Luxembourg and France, deployed Extreme’s Wi-Fi solutions and cloud management platform across its retail and corporate office locations. Extreme’s network solutions enable Colruyt Group Services to support the opening of new physical locations, increase bandwidth in response to growing numbers of IoT devices, and deliver network insights such as device location data to help inform sales strategies.

 

Madrid-based grocery retailer Ahorramas deployed Extreme Wi-Fi 6 access points, SD-WAN solutions, and ExtremeCloud IQ network management software across its 265 retail locations. The new network enables the grocery retailer to simplify network management, as Extreme wired network solutions were previously deployed across its corporate offices and warehouses. It also delivers an improved Wi-Fi experience for employees and customers in all retail locations.  

 

Fiscal Q4 2021 and Fiscal Year 2021 Financial Metrics:

(in millions, except percentages and per share information)

 

 

GAAP Results

 

 

 

Three Months Ended

 

 

Year Ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

Change

 

 

June 30,

2021

 

 

June 30,

2020

 

 

Change

 

Product

 

$

195.8

 

 

$

141.5

 

 

 

38

%

 

$

699.4

 

 

$

653.6

 

 

 

7

%

Service and subscription

 

 

82.3

 

 

 

74.0

 

 

 

11

%

 

 

310.0

 

 

 

294.4

 

 

 

5

%

Total net revenue

 

$

278.1

 

 

$

215.5

 

 

 

29

%

 

$

1,009.4

 

 

$

948.0

 

 

 

6

%

Gross margin

 

 

57.9

%

 

 

56.0

%

 

190 bps

 

 

 

58.0

%

 

 

54.6

%

 

340 bps

 

Operating margin

 

 

6.3

%

 

 

(6.1

)%

 

1240 bps

 

 

 

3.4

%

 

 

(10.4

)%

 

1384 bps

 

Net income (loss)

 

$

10.3

 

 

$

(21.2

)

 

 

149

%

 

$

1.9

 

 

$

(126.8

)

 

 

101

%

Net income (loss) per diluted share

 

$

0.08

 

 

$

(0.18

)

 

 

144

%

 

$

0.02

 

 

$

(1.06

)

 

 

102

%

 

 


 

 

 

 

Non-GAAP Results

 

 

 

Three Months Ended

 

 

Year Ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

Change

 

 

June 30,

2021

 

 

June 30,

2020

 

 

Change

 

Product

 

$

195.8

 

 

$

141.5

 

 

 

38

%

 

$

699.4

 

 

$

653.6

 

 

 

7

%

Service and subscription

 

 

82.3

 

 

 

74.0

 

 

 

11

%

 

 

310.0

 

 

 

294.4

 

 

 

5

%

Total net revenue

 

$

278.1

 

 

$

215.5

 

 

 

29

%

 

$

1,009.4

 

 

$

948.0

 

 

 

6

%

Gross margin

 

 

60.5

%

 

 

59.4

%

 

110 bps

 

 

 

60.9

%

 

 

59.1

%

 

180 bps

 

Operating margin

 

 

13.4

%

 

 

5.2

%

 

820 bps

 

 

 

10.9

%

 

 

4.3

%

 

660 bps

 

Net income

 

$

24.6

 

 

$

3.3

 

 

 

635

%

 

$

72.4

 

 

$

14.1

 

 

 

412

%

Net income per diluted share

 

$

0.19

 

 

$

0.03

 

 

 

533

%

 

$

0.57

 

 

$

0.12

 

 

 

375

%

 

 

Q4 ending cash balance was $246.9 million, an increase of $43.8 million from the end of Q3. This was primarily driven by operating cash flow generation of $57.0 million, partially offset by cash usage of $8.4 million for financing activities, along with $4.9 million for capital expenditures.

 

Q4 accounts receivable balance was $156.5 million, an increase of $25.9 million from the end of Q3 and with days sales outstanding of 51, an increase of 5 days from Q3 and a decrease of 1 day from Q4 last year.  

 

Q4 ending inventory was $32.9 million, a decrease of $11.0 million from Q3 and a decrease of $29.7 million from Q4 last year. The year-over-year and quarter-over-quarter decreases in inventory largely reflect improved demand planning, SKU rationalization and higher inventory turnover. In addition, supply constraints in the recent quarters have contributed to the reduction in inventory.

 

Q4 ending gross debt* was $346.8 million, a decrease of $4.8 million from the prior quarter. The $74.0 million decrease from Q4 last year resulted primarily from principal payments and payments on our revolver loan. Net debt* of $99.9 million decreased by $48.5 million from $148.4 million in Q3.

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 thousands):

 

Free Cash Flow

Three Months Ended

 

 

Year Ended

 

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

Cash flow provided by operations

$

57,039

 

 

$

8,823

 

 

$

144,535

 

 

$

35,884

 

Less: Property and equipment capital expenditures

 

(4,858

)

 

 

(2,638

)

 

 

(17,176

)

 

 

(15,268

)

Total free cash flow

$

52,181

 

 

$

6,185

 

 

$

127,359

 

 

$

20,616

 

 

 


 

 

*Gross debt is defined as long-term and current portion of long-term debt as shown on the balance sheet plus unamortized debt issuance costs. Net debt is defined as gross debt minus cash, as shown in the table below (in millions):

 

Gross debt

 

 

Cash

 

 

Net debt

 

$

346.8

 

 

$

246.9

 

 

$

99.9

 

 

 

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 2022, ending September 30, 2021, the Company is targeting:

 

(in millions, except percentages and per share information)

Low-End

 

 

High-End

 

FQ1'22 Guidance – GAAP

 

 

 

 

 

 

 

Total net revenue

$

250.0

 

 

$

265.0

 

Gross margin

 

55.6

%

 

 

57.8

%

Operating expenses

$

132.6

 

 

$

134.6

 

Operating margin

 

2.6

%

 

 

7.0

%

Net income (loss)

$

0.1

 

 

$

12.1

 

Net income (loss) per diluted share

$

0.00

 

 

$

0.09

 

Shares outstanding used in calculating GAAP EPS

133.2

 

 

133.2

 

FQ1’22 Guidance – Non - GAAP

 

 

 

 

 

 

 

Total net revenue

$

250.0

 

 

$

265.0

 

Gross margin

 

58.0

%

 

 

60.0

%

Operating expenses

$

121.5

 

 

$

123.5

 

Operating margin

 

9.4

%

 

 

13.4

%

Net income

$

16.7

 

 

$

26.7

 

Net income per diluted share

$

0.13

 

 

$

0.20

 

Shares outstanding used in calculating non-GAAP EPS

 

133.2

 

 

 

133.2

 

 

 

The following table shows the GAAP to non-GAAP reconciliation for Q1 FY’22 guidance:

 

 

Gross Margin

Rate

 

 

Operating

Margin Rate

 

 

Earnings per

Share

 

GAAP

55.6% - 57.8%

 

 

2.6% - 7.0%

 

 

$0.00 - $0.09

 

Estimated adjustments for:

 

 

 

 

 

 

 

 

 

 

 

Amortization of product intangibles

1.7%

 

 

1.7%

 

 

 

0.03

 

Share-based compensation

0.3%

 

 

3.9%

 

 

 

0.08

 

Restructuring

 

 

 

0.3%

 

 

 

 

Amortization of non-product intangibles

0.3%

 

 

0.8%

 

 

 

0.02

 

Tax effect of non-GAAP adjustments

 

 

 

 

 

 

(0.00) - (0.02)

 

Non-GAAP

58.0% - 60.0%

 

 

9.4% - 13.4%

 

 

$0.13- $0.20

 

 

        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 fiscal quarter results as well as the business outlook for first fiscal quarter ending September 30, 2021, 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. The conference call may also be heard by dialing 1 (877) 303-9826 or international 1 (224) 357-2194 with Conference ID # 8056219. Supplemental 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 including the non-GAAP reconciliation attached to this press release. The encore recording can be accessed by dialing 1 (855) 859-2056 or international 1 (404) 537-3406. Conference ID # 8056219. The encore recording will be available for at least 7 days following the call.

 

About Extreme:

Extreme Networks, Inc. (EXTR) creates effortless 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 or follow us on Twitter, LinkedIn, and Facebook.

 

Extreme Networks, 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 expenses, non-GAAP operating margin, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share, 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, acquired inventory adjustments, amortization of intangibles, inventory valuation adjustment, and restructuring charges.  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 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, the company’s failure to achieve targeted revenues and forecasted demand from end customers; 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; a dependency on third parties for certain components and for the manufacturing of the company’s products; and the impacts of COVID-19, and any worsening of the global business and economic environment as a result, 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, 2020, Quarterly Report on Form 10-Q for the quarter ended December 31, 2020 and March 31, 2021, 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,

2021

 

 

June 30,

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

246,894

 

 

$

193,872

 

Accounts receivable, net of allowance for doubtful accounts of $986 and $1,212, respectively

 

 

156,476

 

 

 

122,727

 

Inventories

 

 

32,885

 

 

 

62,589

 

Prepaid expenses and other current assets

 

 

51,340

 

 

 

35,019

 

Total current assets

 

 

487,595

 

 

 

414,207

 

Property and equipment, net

 

 

55,004

 

 

 

58,813

 

Operating lease right-of-use assets, net

 

 

36,927

 

 

 

51,274

 

Intangible assets, net

 

 

36,038

 

 

 

68,394

 

Goodwill

 

 

331,159

 

 

 

331,159

 

Other assets

 

 

63,370

 

 

 

55,241

 

Total assets

 

$

1,010,093

 

 

$

979,088

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt, net of unamortized debt issuance costs of $2,404 and $2,484, respectively

 

$

23,721

 

 

$

16,516

 

Accounts payable

 

 

60,142

 

 

 

48,439

 

Accrued compensation and benefits

 

 

71,610

 

 

 

50,884

 

Accrued warranty

 

 

11,623

 

 

 

14,035

 

Current portion, operating lease liabilities

 

 

18,743

 

 

 

19,196

 

Current portion, deferred revenue

 

 

212,412

 

 

 

190,226

 

Other accrued liabilities

 

 

57,449

 

 

 

58,525

 

Total current liabilities

 

 

455,700

 

 

 

397,821

 

Deferred revenue, less current portion

 

 

133,172

 

 

 

100,961

 

Long-term debt, less current portion, net of unamortized debt issuance costs of $4,760 and $7,165, respectively

 

 

315,865

 

 

 

394,585

 

Operating lease liabilities, less current portion

 

 

32,515

 

 

 

50,238

 

Deferred income taxes

 

 

3,828

 

 

 

2,334

 

Other long-term liabilities

 

 

14,545

 

 

 

27,751

 

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; 133,279 and 127,114 shares issued, respectively; 126,682 and 120,517 shares outstanding, respectively

 

 

133

 

 

 

127

 

Additional paid-in-capital

 

 

1,078,602

 

 

 

1,035,041

 

Accumulated other comprehensive loss

 

 

(2,811

)

 

 

(6,378

)

Accumulated deficit

 

 

(978,343

)

 

 

(980,279

)

Treasury stock at cost: 6,597 and 6,597 shares, respectively

 

 

(43,113

)

 

 

(43,113

)

Total stockholders’ equity

 

 

54,468

 

 

 

5,398

 

Total liabilities and stockholders’ equity

 

$

1,010,093

 

 

$

979,088

 

 


 

 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

Three Months Ended

 

 

Year Ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

195,821

 

 

$

141,478

 

 

$

699,396

 

 

$

653,651

 

Service and subscription

 

 

82,267

 

 

 

74,044

 

 

 

310,022

 

 

 

294,368

 

Total net revenues

 

 

278,088

 

 

 

215,522

 

 

 

1,009,418

 

 

 

948,019

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

86,116

 

 

 

71,628

 

 

 

309,958

 

 

 

326,333

 

Service and subscription

 

 

30,872

 

 

 

23,304

 

 

 

114,337

 

 

 

103,847

 

Total cost of revenues

 

 

116,988

 

 

 

94,932

 

 

 

424,295

 

 

 

430,180

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

109,705

 

 

 

69,850

 

 

 

389,438

 

 

 

327,318

 

Service and subscription

 

 

51,395

 

 

 

50,740

 

 

 

195,685

 

 

 

190,521

 

Total gross profit

 

 

161,100

 

 

 

120,590

 

 

 

585,123

 

 

 

517,839

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

49,376

 

 

 

44,533

 

 

 

196,995

 

 

 

209,606

 

Sales and marketing

 

 

74,886

 

 

 

66,707

 

 

 

276,841

 

 

 

283,632

 

General and administrative

 

 

17,357

 

 

 

15,792

 

 

 

66,201

 

 

 

60,991

 

Acquisition and integration costs

 

 

 

 

 

1,998

 

 

 

1,975

 

 

 

32,073

 

Restructuring and related charges, net of reversals

 

 

504

 

 

 

2,604

 

 

 

2,625

 

 

 

22,011

 

Amortization of intangibles

 

 

1,406

 

 

 

2,059

 

 

 

6,110

 

 

 

8,425

 

Total operating expenses

 

 

143,529

 

 

 

133,693

 

 

 

550,747

 

 

 

616,738

 

Operating income (loss)

 

 

17,571

 

 

 

(13,103

)

 

 

34,376

 

 

 

(98,899

)

Interest income

 

 

71

 

 

 

54

 

 

 

352

 

 

 

1,420

 

Interest expense

 

 

(4,531

)

 

 

(6,373

)

 

 

(22,856

)

 

 

(23,750

)

Other (expense) income, net

 

 

(115

)

 

 

(391

)

 

 

(1,687

)

 

 

737

 

Income (loss) before income taxes

 

 

12,996

 

 

 

(19,813

)

 

 

10,185

 

 

 

(120,492

)

Provision for income taxes

 

 

2,670

 

 

 

1,404

 

 

 

8,249

 

 

 

6,353

 

Net Income (loss)

 

$

10,326

 

 

$

(21,217

)

 

$

1,936

 

 

$

(126,845

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share - basic

 

$

0.08

 

 

$

(0.18

)

 

$

0.02

 

 

$

(1.06

)

Net income (loss) per share - diluted

 

$

0.08

 

 

$

(0.18

)

 

$

0.02

 

 

$

(1.06

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in per share calculation - basic

 

 

126,318

 

 

 

120,314

 

 

 

124,019

 

 

 

119,814

 

Shares used in per share calculation - diluted

 

 

132,355

 

 

 

120,314

 

 

 

127,669

 

 

 

119,814

 

 

 


 

 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Year Ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net Income (loss)

 

$

1,936

 

 

$

(126,845

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

22,961

 

 

 

28,603

 

Amortization of intangible assets

 

 

32,356

 

 

 

35,218

 

Reduction in carrying amount of right-of-use asset

 

 

16,134

 

 

 

16,420

 

Provision for doubtful accounts

 

 

409

 

 

 

1,289

 

Share-based compensation

 

 

39,051

 

 

 

37,842

 

Deferred income taxes

 

 

1,785

 

 

 

1,760

 

Non-cash restructuring and impairment charges

 

 

-

 

 

 

7,622

 

Non-cash interest expense

 

 

5,055

 

 

 

4,196

 

Other

 

 

3,989

 

 

 

(349

)

Changes in operating assets and liabilities, net of acquisition:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(34,158

)

 

 

62,151

 

Inventories

 

 

22,729

 

 

 

19,951

 

Prepaid expenses and other assets

 

 

(18,979

)

 

 

781

 

Accounts payable

 

 

10,810

 

 

 

(26,080

)

Accrued compensation and benefits

 

 

20,088

 

 

 

(8,080

)

Operating lease liabilities

 

 

(19,986

)

 

 

(17,345

)

Deferred revenue

 

 

54,398

 

 

 

19,530

 

Other current and long-term liabilities

 

 

(14,043

)

 

 

(20,780

)

Net cash provided by operating activities

 

 

144,535

 

 

 

35,884

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(17,176

)

 

 

(15,268

)

Business acquisition, net of cash acquired

 

 

 

 

 

(219,458

)

Maturities and sales of investments

 

 

 

 

 

45,249

 

Net cash used in investing activities

 

 

(17,176

)

 

 

(189,477

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings under Revolving Facility

 

 

 

 

 

55,000

 

Borrowings under Term Loan

 

 

 

 

 

199,500

 

Payments on debt obligations

 

 

(74,000

)

 

 

(34,517

)

Loan fees on borrowings

 

 

 

 

 

(12,029

)

Repurchase of common stock

 

 

 

 

 

(30,000

)

Proceeds from issuance of common stock, net of tax withholding

 

 

4,516

 

 

 

8,789

 

Payment of contingent consideration obligations

 

 

(1,298

)

 

 

(4,251

)

Deferred payments on an acquisition

 

 

(4,000

)

 

 

(4,000

)

Net cash (used in) provided by financing activities

 

 

(74,782

)

 

 

178,492

 

 

 

 

 

 

 

 

 

 

Foreign currency effect on cash

 

 

445

 

 

 

(634

)

 

 

 

 

 

 

 

 

 

Net increase in cash

 

 

53,022

 

 

 

24,265

 

 

 

 

 

 

 

 

 

 

Cash at beginning of period

 

 

193,872

 

 

 

169,607

 

Cash at end of period

 

$

246,894

 

 

$

193,872

 

 


 

 

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 expenses, non-GAAP operating margin, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share 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.  In this press release, Extreme also presents its range for projected non-GAAP operating expenses, which is operating expenses less share-based compensation expense, restructuring charges and amortization of intangibles.

 

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, acquired inventory adjustments, acquisition and integration costs, amortization of intangibles, inventory valuation adjustments, 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.

Acquired inventory adjustments. Purchase accounting adjustments relating to the mark up of acquired inventory to fair value less disposal costs.

 


 

Acquisition and integration costs. Acquisition and integration costs consist of specified compensation charges, software charges, legal and professional fees related to the acquisition of Aerohive. 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 are 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.

 

Inventory valuation adjustments. Adjustments relating to the mark down of inventory due to duplication of products lines with acquisition of Aerohive net of recoveries on the sale of inventory marked down in previous quarters.

 

Restructuring charges. Restructuring charges primarily consist of severance costs for employees which have no benefit to continuing operations and impairment of right-of-use assets, long-lived assets and other charges related to excess facilities. Extreme excludes restructuring expenses since they result from events that occur outside of the ordinary course of continuing operations.

 

Tax effect of non-GAAP adjustments. Beginning with our first quarter of fiscal 2021, we changed how we calculate our non-GAAP provision for income taxes in accordance with the SEC guidance on non-GAAP Financial Measures Compliance and Disclosure Interpretation.   Previously, the non-GAAP tax provision consisted of current and deferred income tax expense on a GAAP basis as if our carryforward net operating losses were sufficient to offset our non-GAAP adjustments.  Beginning with our first quarter of fiscal 2021, 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 which were previously not utilizable.  The non-GAAP tax provision now 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 24.2%.  We have adjusted the fiscal 2020 non-GAAP tax provision to reflect the 2020 non-GAAP operating results to be comparable with fiscal 2021 results.  As a result of this change, the non-GAAP net income for the three months ended June 30, 2020 remained the same at $0.03 per diluted share as previously reported, but the non-GAAP net income for the year ended June 30, 2020 changed from $0.10 per diluted share as previously reported to $0.12 net income per diluted share.

 

This change does not affect our non-GAAP income (loss) before income taxes, actual cash tax payments or cash flows, but will result in a higher or lower non-GAAP provision for income taxes depending on the level and jurisdictional mix of pre-tax income and available U.S. research and development tax credits.  As of June 30, 2021, we had U.S. federal net operating loss carryforwards of $241 million, state net operating loss carryforwards of $156 million and Irish net operating losses of $17 million. As of June 30, 2020, we had U.S. federal net operating loss carryforwards of $310 million and state net operating loss carryforwards of $181 million.  We do not expect to pay substantial taxes on a GAAP basis in the U.S. for the foreseeable future due to our net operating loss carryforward balances.  Over the near term, most of our cash taxes will continue to be mainly driven by the tax expense of our foreign subsidiaries which amounts have not historically been significant, with the exception of the Company’s Irish operating

 


 

company which has fully utilized available net operating loss carryforwards during fiscal 2021.  We also believe our long-term effective GAAP tax rate will be lower than the U.S. statutory rate based upon our established tax structure.

 

 


 

 

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,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

Revenues - GAAP

$

278,088

 

 

$

215,522

 

 

$

1,009,418

 

 

$

948,019

 

 

Non-GAAP Gross Margin

Three Months Ended

 

 

Year Ended

 

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

Gross profit - GAAP

$

161,100

 

 

$

120,590

 

 

$

585,123

 

 

$

517,839

 

Gross margin - GAAP percentage

 

57.9

%

 

 

56.0

%

 

 

58.0

%

 

 

54.6

%

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

779

 

 

 

708

 

 

 

2,871

 

 

 

2,860

 

Acquired inventory adjustments

 

 

 

 

 

 

 

 

 

 

7,303

 

Acquisition and integration costs

 

 

 

 

98

 

 

 

10

 

 

 

2,169

 

Amortization of intangibles

 

6,432

 

 

 

6,633

 

 

 

26,129

 

 

 

26,430

 

Inventory valuation adjustments

 

 

 

 

 

 

 

 

 

 

3,677

 

Total adjustments to GAAP gross profit

$

7,211

 

 

$

7,439

 

 

$

29,010

 

 

$

42,439

 

Gross profit - non-GAAP

$

168,311