0001078271false00010782712023-08-022023-08-02

 

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): August 2, 2023

 

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.)

2121 RDU Center Drive, Suite 300

Morrisville, North Carolina 27560

(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:

 

☐	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. ☐

 

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Item 2.02 Results of Operations and Financial Condition

On August 2, 2023, Extreme Networks, Inc. (the “Company”) issued a press release announcing certain financial results for its fourth quarter and fiscal year ended June 30, 2023. 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 August 2, 2023.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

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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: August 2, 2023

EXTREME NETWORKS, INC.
By:		/s/ Kevin Rhodes
		Kevin Rhodes
		Executive Vice President, Chief Financial Officer (Principal Accounting Officer)

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Exhibit 99.1

For more information, contact:
Investor Relations				Media Contact
Stan Kovler				Amy Aylward
919/595-4196				603/952-5138
Investor_relations@extremenetworks.com				pr@extremenetworks.com

 

Extreme Networks Reports Fourth Quarter and Fiscal Year 2023 Financial Results

Marks Second Consecutive Year of Double-Digit Revenue Growth

Significant Operating Leverage and GAAP EPS Growth of 76%

Expect Continued Strong Growth in FY24

 

Morrisville, NC, August 2, 2023 -- Extreme Networks, Inc. (“Extreme”) (Nasdaq: EXTR) today released financial results for its fiscal year and fourth quarter ended June 30, 2023.

"Extreme delivered a year of exceptional performance, with revenue growth accelerating to 31% in the fourth quarter and 18% overall for the year," said Ed Meyercord, President and Chief Executive Officer. "This marks our second consecutive year of double-digit growth. We're outgrowing our competitors, gaining share, and winning new logos, which helped drive more than 30% growth in the value of deals over $1 million. We're breaking the status quo of networking through product innovation with differentiated solutions like universal hardware, end-to-end cloud management, enhanced AI, and our unique fabric technology, which greatly simplifies network management and bolsters security. Our focus on simplicity, flexibility, and performance continues to fuel our funnel of large opportunities. I remain confident in our growth prospects and am excited about the new innovations and opportunities we have in store for FY24 and beyond," concluded Meyercord.

Kevin Rhodes, Executive Vice President and Chief Financial Officer stated, "the strong topline growth we achieved in Q4 and FY23 resulted in significant operating leverage that drove over 76% growth in GAAP EPS. We doubled our cash generation to $235 million in free cash flow this year, and even after repurchasing another $100 million worth of shares, and paying down $80 million in debt, we improved our year-end balance sheet to achieve a net cash position. Extreme has never been in a more robust financial position, and I am encouraged about our future prospects."

 

Fiscal Fourth Quarter Results:

 

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Fiscal Year 2023 Results:

 

Liquidity:

 

 

Recent Key Highlights:

 

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Fiscal Q4 2023 and Full Year 2023 Financial Metrics:

(in millions, except percentages and per share information)

		GAAP Results
		Three Months Ended												Year Ended
		June 30, 2023				June 30, 2022				Change				June 30, 2023				June 30, 2022				Change
Product		$	261.7			$	187.1			$	74.6			$	932.5			$	761.7			$	170.8
Service and subscription			102.2				91.1				11.1				380.0				350.6				29.4
Total net revenue		$	363.9			$	278.2			$	85.7			$	1,312.5			$	1,112.3			$	200.2
Gross margin			58.9	%			55.4	%			3.5	%			57.5	%			56.6	%			0.9	%
Operating margin			10.4	%			3.8	%			6.6	%			8.3	%			5.8	%			2.5	%
Net income		$	25.4			$	5.4			$	20.0			$	78.1			$	44.3			$	33.8
Net income per diluted share		$	0.19			$	0.04			$	0.15			$	0.58			$	0.33			$	0.25

 

		Non-GAAP Results
		Three Months Ended												Year Ended
		June 30, 2023				June 30, 2022				Change				June 30, 2023				June 30, 2022				Change
Product		$	261.7			$	187.1			$	74.6			$	932.5			$	761.7			$	170.8
Service and subscription			102.2				91.1				11.1				380.0				350.6				29.4
Total net revenue		$	363.9			$	278.2			$	85.7			$	1,312.5			$	1,112.3			$	200.2
Gross margin			60.2	%			57.0	%			3.2	%			58.9	%			58.4	%			0.5	%
Operating margin			17.4	%			9.6	%			7.8	%			15.2	%			12.2	%			3.0	%
Net income		$	43.9			$	19.7			$	24.2			$	146.3			$	103.5			$	42.9
Net income per diluted share		$	0.33			$	0.15			$	0.18			$	1.09			$	0.77			$	0.32

 

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 millions):

 

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Free Cash Flow	Three Months Ended								Year Ended
	June 30, 2023				June 30, 2022				June 30, 2023				June 30, 2022
Cash flow provided by operations	$	80.7			$	64.1			$	249.2			$	128.2
Less: Property and equipment capital expenditures		(5.2	)			(4.3	)			(13.8	)			(15.5	)
Total free cash flow	$	75.5			$	59.8			$	235.4			$	112.7

 

SaaS ARR: Extreme uses SaaS annual recurring revenue (“SaaS ARR”) to identify the annual recurring revenue of ExtremeCloud™ IQ (XIQ) and other subscription revenue, based on the annualized value of quarterly subscription revenue and term-based licenses. We believe that SaaS ARR is an important metric because it is driven by our ability to acquire new customers and to maintain and expand our relationships with existing customers. SaaS ARR should be viewed independently of revenue or deferred revenue accounted under U.S. GAAP. SaaS ARR does not have a standardized meaning and therefore may not be comparable to similarly titled measures presented by other companies. SaaS ARR is not intended to be a replacement for forecasts of revenue.

 

Gross Debt: Gross debt is defined as long-term debt and the current portion of long-term debt as shown on the balance sheet plus unamortized debt issuance costs, if any.

 

Net Cash (Debt) is defined as cash minus gross debt, as shown in the table below (in millions):

 

Cash				Gross debt				Net cash (debt)
$	234.8			$	225.0			$	9.8

 

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 2024, ending September 30, 2023, the Company is targeting:

 

(in millions, except percentages and per share information)	Low-End				High-End
FQ1'24 Guidance – GAAP
Total net revenue	$	342.0			$	352.0
Gross margin		58.6	%			60.6	%
Operating margin		7.5	%			9.8	%
Net income per diluted share	$	0.12			$	0.18
Shares outstanding used in calculating GAAP EPS		133.0				133.0
FQ1’24 Guidance – Non-GAAP
Total net revenue	$	342.0			$	352.0
Gross margin		59.5	%			61.5	%
Operating margin		15.3	%			17.6	%
Net income per diluted share	$	0.28			$	0.33
Shares outstanding used in calculating non-GAAP EPS		133.0				133.0

 

 

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The following table shows the GAAP to non-GAAP reconciliation for Q1 FY’24 guidance:

 

	Gross Margin Rate		Operating Margin Rate		Earnings per Share
GAAP	58.6% - 60.6%		7.5% - 9.8%		$0.12 - $0.18
Estimated adjustments for:
Share-based compensation	0.5%		5.7%		0.15
Amortization of product intangibles	0.3%		0.3%		0.01
Amortization of non-product intangibles	0.1%		0.2%		0.01
Restructuring	—		1.0%		0.03
Litigation charges	—		0.3%		0.01
System transition cost	—		0.3%		0.01
Tax adjustment	—		—		(0.06)
Non-GAAP	59.5% - 61.5%		15.3% - 17.6%		$0.28 - $0.33

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 quarter results of fiscal 2023 as well as the business outlook for the first quarter of fiscal 2024 ending September 30, 2023, 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. To access the call by phone, please go to this link (Extreme Networks Q4'23 Earnings Registration Link) and you will be provided with dial in details. To avoid delays, we encourage participants to dial into the conference call fifteen minutes ahead of the scheduled start time.

 

About Extreme:

Extreme Networks, Inc. (EXTR) creates 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 at https://www.extremenetworks.com/ or LinkedIn, YouTube, Twitter, Facebook or Instagram

 

Extreme Networks, ExtremeCloud, 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 margin, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share, net cash (debt) 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, amortization of intangibles, restructuring charges, system transition costs, litigation charges, debt restructuring charges and the tax effect of non-GAAP adjustments. 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

 

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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 operating metrics, 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, risks related to supply chain disruptions and component availability; the Company’s failure to achieve targeted financial metrics; 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, including the Russia/Ukraine conflict; a dependency on third parties for certain components and for the manufacturing of the Company’s products; and the impacts of global business and economic trends 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, 2022, Quarterly Reports on Form 10-Q for the quarters ended September 30, 2022, December 31, 2022, and, March 31, 2023, 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.

 

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EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

		June 30, 2023				June 30, 2022
ASSETS
Current assets:
Cash		$	234,826			$	194,522
Accounts receivable, net			182,045				184,097
Inventories			89,024				49,231
Prepaid expenses and other current assets			70,263				61,239
Total current assets			576,158				489,089
Property and equipment, net			46,448				49,578
Operating lease right-of-use assets, net			34,739				36,454
Intangible assets, net			16,063				32,515
Goodwill			394,755				400,144
Other assets			73,544				60,730
Total assets		$	1,141,707			$	1,068,510
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt, net of unamortized debt issuance costs of $674 and $2,276, respectively		$	34,326			$	33,349
Accounts payable			99,724				84,338
Accrued compensation and benefits			71,367				53,710
Accrued warranty			12,322				10,852
Current portion, operating lease liabilities			10,847				13,956
Current portion, deferred revenue			282,475				238,262
Other accrued liabilities			64,440				65,714
Total current liabilities			575,501				500,181
Deferred revenue, less current portion			219,024				163,357
Long-term debt, less current portion, net of unamortized debt issuance costs of $2,409 and $2,430, respectively			187,591				270,570
Operating lease liabilities, less current portion			31,845				33,256
Deferred income taxes			7,747				7,717
Other long-term liabilities			3,247				3,086
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; 143,629 and 139,742 shares issued, respectively; 127,775 and 129,263 shares outstanding, respectively			144				140
Additional paid-in-capital			1,173,744				1,115,416
Accumulated other comprehensive loss			(13,192	)			(3,055	)
Accumulated deficit			(855,998	)			(934,072	)
Treasury stock at cost, 15,854 and 10,479 shares, respectively			(187,946	)			(88,086	)
Total stockholders’ equity			116,752				90,343
Total liabilities and stockholders’ equity		$	1,141,707			$	1,068,510

 

 

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EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

		Three Months Ended								Year Ended
		June 30, 2023				June 30, 2022				June 30, 2023				June 30, 2022
Net revenues:
Product		$	261,675			$	187,085			$	932,454			$	761,721
Service and subscription			102,235				91,111				380,000				350,600
Total net revenues			363,910				278,196				1,312,454				1,112,321
Cost of revenues:
Product			114,030				96,103				426,295				360,562
Service and subscription			35,461				27,902				131,439				121,821
Total cost of revenues			149,491				124,005				557,734				482,383
Gross profit:
Product			147,645				90,982				506,159				401,159
Service and subscription			66,774				63,209				248,561				228,779
Total gross profit			214,419				154,191				754,720				629,938
Operating expenses:
Research and development			55,826				45,130				214,270				190,591
Sales and marketing			94,024				80,538				336,906				294,470
General and administrative			25,619				16,103				89,934				68,697
Acquisition and integration costs			—				553				390				7,009
Restructuring and related charges			540				770				2,860				1,748
Amortization of intangibles			510				639				2,047				3,235
Total operating expenses			176,519				143,733				646,407				565,750
Operating income			37,900				10,458				108,313				64,188
Interest income			1,100				110				3,155				412
Interest expense			(5,729	)			(3,039	)			(17,385	)			(12,789	)
Other income (expense), net			(119	)			86				23				383
Income before income taxes			33,152				7,615				94,106				52,194
Provision for income taxes			7,725				2,205				16,032				7,923
Net income		$	25,427			$	5,410			$	78,074			$	44,271
Basic and diluted income per share:
Net income per share – basic		$	0.20			$	0.04			$	0.60			$	0.34
Net income per share – diluted		$	0.19			$	0.04			$	0.58			$	0.33
Shares used in per share calculation – basic			128,294				129,788				129,473				129,437
Shares used in per share calculation – diluted			132,873				132,304				133,649				133,494

 

 

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EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

		Year Ended
		June 30, 2023				June 30, 2022
Cash flows from operating activities:
Net income		$	78,074			$	44,271
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			19,888				20,215
Amortization of intangible assets			14,988				19,946
Reduction in carrying amount of right-of-use asset			12,248				14,929
Provision for doubtful accounts			459				29
Share-based compensation			63,472				43,362
Deferred income taxes			407				682
Non-cash interest expense			1,145				4,443
Other			(8,056	)			423
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable			1,593				(26,231	)
Inventories			(41,827	)			(16,722	)
Prepaid expenses and other assets			(1,368	)			(4,469	)
Accounts payable			14,733				23,810
Accrued compensation and benefits			17,137				(20,709	)
Operating lease liabilities			(15,219	)			(18,949	)
Deferred revenue			90,102				44,635
Other current and long-term liabilities			1,436				(1,488	)
Net cash provided by operating activities			249,212				128,177
Cash flows from investing activities:
Capital expenditures			(13,800	)			(15,433	)
Business acquisition, net of cash acquired			—				(69,517	)
Net cash used in investing activities			(13,800	)			(84,950	)
Cash flows from financing activities:
Borrowings under Revolving Facility			25,000				—
Payments on debt obligations			(108,625	)			(38,125	)
Loan fees on borrowings			(3,158	)			—
Repurchase of common stock			(99,860	)			(44,973	)
Payments for tax withholdings, net of proceeds from issuance of common stock			(5,140	)			(6,541	)
Payment of contingent consideration obligations			—				(1,024	)
Deferred payments on an acquisition			(3,000	)			(4,000	)
Net cash used in financing activities			(194,783	)			(94,663	)
Foreign currency effect on cash			(325	)			(936	)
Net increase (decrease) in cash			40,304				(52,372	)
Cash at beginning of period			194,522				246,894
Cash at end of period		$	234,826			$	194,522

 

 

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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 margin, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share, net cash (debt) 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.

 

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, acquisition and integration costs, amortization of intangibles, restructuring charges, system transition costs, litigation charges, debt 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.

Acquisition and integration costs. Acquisition and integration costs consist of specified compensation charges, software charges, and legal and professional fees related to the acquisition of Ipanema. Extreme excludes these expenses since they result from an event that is outside the ordinary course of continuing operations.

 

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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 is 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.

 

Restructuring charges. Restructuring charges consist of severance costs for employees, asset disposal costs and other charges related to excess facilities that do not provide economic benefit to our future operations. Extreme excludes restructuring expenses since they result from events that occur outside of the ordinary course of continuing operations.

 

System transition costs. System transition costs consist of costs related to direct and incremental costs incurred in connection with our multi-phase transition of our customer relationship management solution and our configure, price, quote solution. Extreme excludes these costs because we believe that these costs do not reflect future operating expenses and will be inconsistent in amount and frequency making it difficult to contribute to a meaningful evaluation of our operating performance.

 

Litigation charges. Litigation charges consist of estimated settlement and related legal expenses for a non-recurring pending litigation.

 

Debt refinancing charges. Debt refinancing charges consist of the write-off of certain unamortized debt issuance costs included on interest expense, as well as other debt refinancing charges that were not capitalizable and are included in other income (expense), that occurred in conjunction with the amendment of our credit facility in June 2023.

 

Tax effect of non-GAAP adjustments. We calculate our non-GAAP provision for income taxes in accordance with the SEC guidance on non-GAAP Financial Measures Compliance and Disclosure Interpretation. 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. The non-GAAP tax provision 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 24.6%.

 

The non-GAAP provision for income taxes has typically been and is currently higher than the GAAP provision given the Company has a valuation allowance against its US and a portion of its Irish deferred tax assets due to historical losses. Once these valuation allowances are released, the non-GAAP and the GAAP provision for income taxes will be more closely aligned.

 

Over the next year, our cash taxes will be driven by US federal and state taxes and the tax expense of our foreign subsidiaries which amounts have not historically been significant, with the exception of the Company’s Indian subsidiary which performs research and development activities, as well as the Company’s Irish trading subsidiaries.

 

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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, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Revenues – GAAP	$363,910		$278,196		$1,312,454		$1,112,321

Non-GAAP Gross Margin	Three Months Ended								Year Ended
	June 30, 2023				June 30, 2022				June 30, 2023				June 30, 2022
Gross profit – GAAP	$	214,419			$	154,191			$	754,720			$	629,938
Gross margin – GAAP percentage		58.9	%			55.4	%			57.5	%			56.6	%
Adjustments:
Share-based compensation expense, Product		491				281				1,856				1,186
Share-based compensation expense, Services and subscription		945				365				3,513				1,421
Amortization of intangibles, Product		2,230				2,804				9,611				13,381
Amortization of intangibles, Service and subscription		815				815				3,258				3,259
Total adjustments to GAAP gross profit	$	4,481			$	4,265			$	18,238			$	19,247
Gross profit – non-GAAP	$	218,900			$	158,456			$	772,958			$	649,185
Gross margin – non-GAAP percentage		60.2	%			57.0	%			58.9	%			58.4	%

 

Non-GAAP Operating Income	Three Months Ended								Year Ended
	June 30, 2023				June 30, 2022				June 30, 2023				June 30, 2022
GAAP operating income	$	37,900			$	10,458			$	108,313			$	64,188
GAAP operating income percentage		10.4	%			3.8	%			8.3	%			5.8	%
Adjustments:
Share-based compensation expense, cost of revenues		1,436				646				5,369				2,607
Share-based compensation expense, R&D		3,889				2,427				14,824				9,995
Share-based compensation expense, S&M		5,924				3,733				22,250				15,000
Share-based compensation expense, G&A		5,662				3,925				21,029				15,760
Acquisition and integration costs		—				553				390				7,009
Restructuring charges		540				770				2,860				1,748
Litigation charges		4,022				—				8,026				—
System transition costs		467				—				957				—
Amortization of intangibles		3,555				4,258				14,916				19,875
Total adjustments to GAAP operating income		25,495				16,312				90,621				71,994
Non-GAAP operating income	$	63,395			$	26,770			$	198,934			$	136,182
Non-GAAP operating income percentage		17.4	%			9.6	%			15.2	%			12.2	%

 

 

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Non-GAAP Net Income	Three Months Ended								Year Ended
	June 30, 2023				June 30, 2022				June 30, 2023				June 30, 2022
GAAP net income	$	25,427			$	5,410			$	78,074			$	44,271
Adjustments:
Share-based compensation expense		16,911				10,731				63,472				43,362
Acquisition and integration costs		—				553				390				7,009
Restructuring charge, net of reversal		540				770				2,860				1,748
Litigation charges		4,022				—				8,026				—
System transition costs		467				—				957				—
Amortization of intangibles		3,555				4,258				14,916				19,875
Debt refinancing charges, Interest expense		1,346				—				1,346				—
Debt refinancing charges, Other income (expense)		197				—				197				—
Tax effect of non-GAAP adjustments		(8,574	)			(2,074	)			(23,933	)			(12,814	)
Total adjustments to GAAP net income	$	18,464			$	14,238			$	68,231			$	59,180
Non-GAAP net income	$	43,891			$	19,648			$	146,305			$	103,451
Earnings per share
GAAP net income per share – diluted	$	0.19			$	0.04			$	0.58			$	0.33
Non-GAAP net income per share – diluted	$	0.33			$	0.15			$	1.09			$	0.77
Shares used in net income per share – diluted:
GAAP Shares used in per share calculation – basic		128,294				129,788				129,473				129,437
Potentially dilutive equity awards		4,579				2,516				4,176				4,057
GAAP and Non-GAAP shares used in per share calculation – diluted		132,873				132,304				133,649				133,494

 

 

 

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