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p262Tejo

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

Form 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2023

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to ______

Commission file number 000-25711

 

EXTREME NETWORKS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

delaware

77-0430270

[State or other jurisdiction

of incorporation or organization]

[I.R.S. Employer

Identification No.]

2121 RDU Center Drive, Suite 300,

Morrisville, North Carolina

27560

[Address of principal executive offices]

[Zip Code]

Registrant’s telephone number, including area code: (408) 579-2800

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: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§-232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by checkmark 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.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

As of January 26, 2024, the registrant had 128,730,411 shares of common stock, $0.001 par value per share, outstanding.

 

 


 

EXTREME NETWORKS, INC.

FORM 10-Q

QUARTERLY PERIOD ENDED

December 31, 2023

 

INDEX

 

 

 

 

PAGE

PART I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets as of December 31, 2023 and June 30, 2023

3

Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2023 and 2022

4

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2023 and 2022

5

 

Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended December 31, 2023 and 2022

6

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2023 and 2022

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

35

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

36

Item 1A

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3.

Defaults Upon Senior Securities

37

Item 4.

Mine Safety Disclosure

37

Item 5.

Other Information

37

Item 6.

Exhibits

38

Signatures

39

 

2


 

PART I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements (Unaudited)

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

December 31,
2023

 

 

June 30,
2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

221,403

 

 

$

234,826

 

Accounts receivable, net

 

 

112,047

 

 

 

182,045

 

Inventories

 

 

152,521

 

 

 

89,024

 

Prepaid expenses and other current assets

 

 

72,272

 

 

 

70,263

 

Total current assets

 

 

558,243

 

 

 

576,158

 

Property and equipment, net

 

 

47,598

 

 

 

46,448

 

Operating lease right-of-use assets, net

 

 

47,124

 

 

 

34,739

 

Intangible assets, net

 

 

13,104

 

 

 

16,063

 

Goodwill

 

 

395,606

 

 

 

394,755

 

Other assets

 

 

80,983

 

 

 

73,544

 

Total assets

 

$

1,142,658

 

 

$

1,141,707

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt, net of unamortized debt issuance costs of $675
 and $
674, respectively

 

$

9,325

 

 

$

34,326

 

Accounts payable

 

 

87,790

 

 

 

99,724

 

Accrued compensation and benefits

 

 

50,862

 

 

 

71,367

 

Accrued warranty

 

 

11,397

 

 

 

12,322

 

Current portion of operating lease liabilities

 

 

10,686

 

 

 

10,847

 

Current portion of deferred revenue

 

 

300,399

 

 

 

282,475

 

Other accrued liabilities

 

 

78,507

 

 

 

64,440

 

Total current liabilities

 

 

548,966

 

 

 

575,501

 

Deferred revenue, less current portion

 

 

247,777

 

 

 

219,024

 

Long-term debt, less current portion, net of unamortized debt issuance costs of $2,069 and $2,409, respectively

 

 

182,931

 

 

 

187,591

 

Operating lease liabilities, less current portion

 

 

43,852

 

 

 

31,845

 

Deferred income taxes

 

 

7,748

 

 

 

7,747

 

Other long-term liabilities

 

 

3,200

 

 

 

3,247

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

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; 146,843 and 143,629 shares issued, respectively; 128,624 and 127,775 shares outstanding, respectively

 

 

147

 

 

 

144

 

Additional paid-in-capital

 

 

1,181,230

 

 

 

1,173,744

 

Accumulated other comprehensive loss

 

 

(12,058

)

 

 

(13,192

)

Accumulated deficit

 

 

(823,334

)

 

 

(855,998

)

Treasury stock at cost, 18,219 and 15,854 shares, respectively

 

 

(237,801

)

 

 

(187,946

)

Total stockholders’ equity

 

 

108,184

 

 

 

116,752

 

Total liabilities and stockholders’ equity

 

$

1,142,658

 

 

$

1,141,707

 

 

See accompanying notes to condensed consolidated financial statements.

3


 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,
2023

 

 

December 31,
2022

 

 

December 31,
2023

 

 

December 31,
2022

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

186,611

 

 

$

223,445

 

 

$

440,094

 

 

$

429,721

 

Subscription and support

 

 

109,766

 

 

 

94,903

 

 

 

209,420

 

 

 

186,316

 

Total net revenues

 

 

296,377

 

 

 

318,348

 

 

 

649,514

 

 

 

616,037

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

81,493

 

 

 

103,587

 

 

 

190,029

 

 

 

203,350

 

Subscription and support

 

 

31,514

 

 

 

33,106

 

 

 

63,179

 

 

 

64,324

 

Total cost of revenues

 

 

113,007

 

 

 

136,693

 

 

 

253,208

 

 

 

267,674

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

105,118

 

 

 

119,858

 

 

 

250,065

 

 

 

226,371

 

Subscription and support

 

 

78,252

 

 

 

61,797

 

 

 

146,241

 

 

 

121,992

 

Total gross profit

 

 

183,370

 

 

 

181,655

 

 

 

396,306

 

 

 

348,363

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

52,833

 

 

 

52,618

 

 

 

110,849

 

 

 

103,607

 

Sales and marketing

 

 

85,154

 

 

 

80,538

 

 

 

177,074

 

 

 

158,920

 

General and administrative

 

 

25,384

 

 

 

24,085

 

 

 

49,257

 

 

 

42,632

 

Acquisition and integration costs

 

 

 

 

 

 

 

 

 

 

 

390

 

Restructuring and related charges

 

 

9,174

 

 

 

476

 

 

 

11,891

 

 

 

957

 

Amortization of intangible assets

 

 

509

 

 

 

504

 

 

 

1,020

 

 

 

1,027

 

Total operating expenses

 

 

173,054

 

 

 

158,221

 

 

 

350,091

 

 

 

307,533

 

Operating income

 

 

10,316

 

 

 

23,434

 

 

 

46,215

 

 

 

40,830

 

Interest income

 

 

1,430

 

 

 

889

 

 

 

2,656

 

 

 

1,281

 

Interest expense

 

 

(4,269

)

 

 

(3,884

)

 

 

(8,587

)

 

 

(7,710

)

Other income (expense), net

 

 

(420

)

 

 

138

 

 

 

12

 

 

 

509

 

Income before income taxes

 

 

7,057

 

 

 

20,577

 

 

 

40,296

 

 

 

34,910

 

Provision for income taxes

 

 

3,069

 

 

 

2,646

 

 

 

7,632

 

 

 

4,394

 

Net income

 

$

3,988

 

 

$

17,931

 

 

$

32,664

 

 

$

30,516

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share – basic

 

$

0.03

 

 

$

0.14

 

 

$

0.25

 

 

$

0.23

 

Net income per share – diluted

 

$

0.03

 

 

$

0.13

 

 

$

0.25

 

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in per share calculation – basic

 

 

128,987

 

 

 

130,465

 

 

 

128,885

 

 

 

130,377

 

Shares used in per share calculation – diluted

 

 

131,514

 

 

 

134,453

 

 

 

132,786

 

 

 

133,833

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,
2023

 

 

December 31,
2022

 

 

December 31,
2023

 

 

December 31,
2022

 

Net income

 

$

3,988

 

 

$

17,931

 

 

$

32,664

 

 

$

30,516

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gains and losses on interest rate swaps

 

 

 

 

 

29

 

 

 

 

 

 

328

 

Reclassification adjustment related to interest rate swaps

 

 

 

 

 

(558

)

 

 

 

 

 

(834

)

Change in unrealized gains and losses on foreign currency forward contracts

 

 

 

 

 

358

 

 

 

 

 

 

358

 

 Net change from derivatives designated as hedging instruments

 

 

 

 

 

(171

)

 

 

 

 

 

(148

)

Net change in foreign currency translation adjustments

 

 

4,038

 

 

 

(8,205

)

 

 

1,134

 

 

 

(10,343

)

Other comprehensive income (loss):

 

 

4,038

 

 

 

(8,376

)

 

 

1,134

 

 

 

(10,491

)

Total comprehensive income

 

$

8,026

 

 

$

9,555

 

 

$

33,798

 

 

$

20,025

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

(Unaudited)

 

 

Common Stock

 

 

Additional Paid-

 

 

Accumulated Other

 

 

Treasury Stock

 

 

Accumulated

 

 

Total Stockholders'

 

 

Shares

 

 

Amount

 

 

In-Capital

 

 

Comprehensive Loss

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Equity

 

Balance at September 30, 2022

 

141,706

 

 

$

142

 

 

$

1,125,204

 

 

$

(5,170

)

 

 

(10,479

)

 

$

(88,086

)

 

$

(921,487

)

 

$

110,603

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,931

 

 

 

17,931

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

(8,376

)

 

 

 

 

 

 

 

 

 

 

 

(8,376

)

Issuance of common stock from equity incentive plans, net of tax withholdings

 

431

 

 

 

 

 

 

(3,184

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,184

)

Repurchase of stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,578

)

 

 

(49,803

)

 

 

 

 

 

(49,803

)

Share-based compensation

 

 

 

 

 

 

 

17,396

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,396

 

Balance at December 31, 2022

 

142,137

 

 

 

142

 

 

$

1,139,416

 

 

$

(13,546

)

 

 

(13,057

)

 

$

(137,889

)

 

$

(903,556

)

 

$

84,567

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2022

 

139,742

 

 

$

140

 

 

$

1,115,416

 

 

$

(3,055

)

 

 

(10,479

)

 

$

(88,086

)

 

$

(934,072

)

 

$

90,343

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,516

 

 

 

30,516

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

(10,491

)

 

 

 

 

 

 

 

 

 

 

 

(10,491

)

Issuance of common stock from equity incentive plans, net of tax withholdings

 

2,395

 

 

 

2

 

 

 

(7,185

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,183

)

Repurchase of stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,578

)

 

 

(49,803

)

 

 

 

 

 

(49,803

)

Share-based compensation

 

 

 

 

 

 

 

31,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31,185

 

Balance at December 31, 2022

 

142,137

 

 

$

142

 

 

$

1,139,416

 

 

$

(13,546

)

 

 

(13,057

)

 

$

(137,889

)

 

$

(903,556

)

 

$

84,567

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2023

 

146,264

 

 

$

146

 

 

$

1,164,589

 

 

$

(16,096

)

 

 

(16,734

)

 

$

(212,835

)

 

$

(827,322

)

 

$

108,482

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,988

 

 

 

3,988

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

4,038

 

 

 

 

 

 

 

 

 

 

 

 

4,038

 

Issuance of common stock from equity incentive plans, net of tax withholdings

 

579

 

 

 

1

 

 

 

(4,316

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,315

)

Repurchase of stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,485

)

 

 

(24,966

)

 

 

 

 

 

(24,966

)

Share-based compensation

 

 

 

 

 

 

 

20,957

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,957

 

Balance at December 31, 2023

 

146,843

 

 

$

147

 

 

$

1,181,230

 

 

$

(12,058

)

 

 

(18,219

)

 

$

(237,801

)

 

$

(823,334

)

 

$

108,184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2023

 

143,629

 

 

$

144

 

 

$

1,173,744

 

 

$

(13,192

)

 

 

(15,854

)

 

$

(187,946

)

 

$

(855,998

)

 

$

116,752

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,664

 

 

 

32,664

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

1,134

 

 

 

 

 

 

 

 

 

 

 

 

1,134

 

Issuance of common stock from equity incentive plans, net of tax withholdings

 

3,214

 

 

 

3

 

 

 

(33,390

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33,387

)

Repurchase of stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,365

)

 

 

(49,855

)

 

 

 

 

 

(49,855

)

Share-based compensation

 

 

 

 

 

 

 

40,876

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,876

 

Balance at December 31, 2023

 

146,843

 

 

$

147

 

 

$

1,181,230

 

 

$

(12,058

)

 

 

(18,219

)

 

$

(237,801

)

 

$

(823,334

)

 

$

108,184

 

 

See accompanying notes to condensed consolidated financial statements.

6


 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Six Months Ended

 

 

 

December 31,
2023

 

 

December 31,
2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

32,664

 

 

$

30,516

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation

 

 

9,485

 

 

 

9,983

 

Amortization of intangible assets

 

 

3,064

 

 

 

7,852

 

Reduction in carrying amount of right-of-use asset

 

 

5,891

 

 

 

6,240

 

Provision for doubtful accounts

 

 

82

 

 

 

102

 

Share-based compensation

 

 

40,876

 

 

 

31,185

 

Deferred income taxes

 

 

(21

)

 

 

65

 

Non-cash interest expense

 

 

532

 

 

 

764

 

Other

 

 

(2,481

)

 

 

(5,904

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

69,915

 

 

 

31,944

 

Inventories

 

 

(64,552

)

 

 

(14,506

)

Prepaid expenses and other assets

 

 

(7,850

)

 

 

(6,557

)

Accounts payable

 

 

(12,263

)

 

 

2,164

 

Accrued compensation and benefits

 

 

(20,625

)

 

 

9,170

 

Operating lease liabilities

 

 

(6,444

)

 

 

(7,383

)

Deferred revenue

 

 

48,272

 

 

 

28,776

 

Other current and long-term liabilities

 

 

13,320

 

 

 

(4,074

)

Net cash provided by operating activities

 

 

109,865

 

 

 

120,337

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(9,955

)

 

 

(6,271

)

Net cash used in investing activities

 

 

(9,955

)

 

 

(6,271

)

Cash flows from financing activities:

 

 

 

 

 

 

Payments on revolving facility

 

 

(25,000

)

 

 

 

Payments on debt obligations

 

 

(5,000

)

 

 

(46,625

)

Repurchase of common stock

 

 

(49,855

)

 

 

(49,803

)

Payments for tax withholdings, net of proceeds from issuance of common stock

 

 

(33,387

)

 

 

(7,183

)

Deferred payments on an acquisition

 

 

 

 

 

(2,000

)

Net cash used in financing activities

 

 

(113,242

)

 

 

(105,611

)

Foreign currency effect on cash and cash equivalents

 

 

(91

)

 

 

(456

)

Net increase (decrease) in cash and cash equivalents

 

 

(13,423

)

 

 

7,999

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

234,826

 

 

 

194,522

 

Cash and cash equivalents at end of period

 

$

221,403

 

 

$

202,521

 

 

See accompanying notes to the condensed consolidated financial statements.

 

7


 

EXTREME NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.
Description of Business and Basis of Presentation

Extreme Networks, Inc., together with its subsidiaries (collectively referred to as “Extreme” or the “Company”), is a leader in providing software-driven networking solutions for enterprise customers. The Company conducts its sales and marketing activities on a worldwide basis through distributors, resellers, and the Company’s field sales organization. Extreme was incorporated in California in 1996 and reincorporated in Delaware in 1999.

The unaudited condensed consolidated financial statements of Extreme included herein have been prepared under the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted under such rules and regulations. The condensed consolidated balance sheet at June 30, 2023 was derived from audited financial statements as of that date but does not include all disclosures required by generally accepted accounting principles for complete financial statements. These interim financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations and cash flows for the interim periods presented and the financial condition of Extreme at December 31, 2023. The results of operations for the three and six months ended December 31, 2023 are not necessarily indicative of the results that may be expected for fiscal 2024 or any future periods.

Fiscal Year

The Company uses a fiscal calendar year ending on June 30. All references herein to “fiscal 2024” represent the fiscal year ending June 30, 2024. All references herein to “fiscal 2023” represent the fiscal year ended June 30, 2023.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Extreme and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated.

The Company predominantly uses the United States Dollar as its functional currency. The functional currency for certain of its foreign subsidiaries is the local currency. For those subsidiaries that operate in a local functional currency environment, all assets and liabilities are translated to United States Dollars at current month end rates of exchange and revenues, and expenses are translated using the monthly average rate.

Accounting Estimates