EXTR Extreme Networks Inc

Revenue Growth in-line With Previous Outlook With 29% Year-over-Year Growth in SaaS ARR

Extreme Networks, Inc. (“Extreme”) (Nasdaq: EXTR) today released financial results for its fourth quarter and fiscal year ended June 30, 2024.

"We’re pleased to see strengthening global demand and to have moved past the historic challenges of the multi-year supply chain constraints. We successfully completed our initiatives to eliminate channel and inventory headwinds. Entering fiscal 2025, we have a significant growth opportunity based on the rapid convergence of cloud networking, generative AI and security. Our unique value proposition continues to resonate with enterprise customers and channel partners, as evidenced by the growth and quality of our pipeline and rising SaaS ARR," said Ed Meyercord, President and Chief Executive Officer.

"As the second largest cloud networking services provider, and a continued strong leadership position in the Gartner MQ, Extreme is poised to benefit from the industry disruption from larger players in the enterprise market. Key competitors are either distracted by portfolio rationalization and integration, or shifting business focus away from networking, just as we are gaining share. Customers and channel partners recognize our innovation, unparalleled flexibility, ease of doing business, and the simplicity we deliver. We de-risk the process for customers to evolve their networks to the most modern platform in the industry," concluded Meyercord.

Kevin Rhodes, Executive Vice President and Chief Financial Officer, stated, "We took action in the fourth quarter to reserve end of sale inventory and position our new products for growth in fiscal 2025. As a result, we recorded an additional provision for excess and obsolete inventory to align these plans and outlook with our expectations. Our current distributor inventory position now better reflects end customer demand trends. We are optimistic about a return to growth this year and expect gross margins to progressively improve throughout the fiscal year, resulting in non-GAAP double-digit operating margins, and strengthening cash flow."

Fiscal Fourth Quarter Results:

• Revenue $256.7 million, down 29% year-over-year and up 22% quarter-over-quarter
• SaaS ARR $167.0 million, up 29.0% year-over-year
• GAAP Loss Per Share $0.42, compared to GAAP diluted EPS $0.19 in the prior year quarter
• Non-GAAP Loss Per Share $0.08, compared to Non-GAAP diluted EPS $0.33 in the prior year quarter
• GAAP gross margin 44.7%, compared to 58.9% in the prior year quarter
• Non-GAAP gross margin 45.4%, compared to 60.2% in the prior year quarter
• GAAP operating loss margin 19.1%, compared to GAAP operating profit margin 10.4% in the prior year quarter
• Non-GAAP operating loss margin 4.6%, compared to Non-GAAP operating profit margin 17.4% in the prior year quarter

Fiscal Year 2024 Results:

• Revenue $1,117.2 million, down 15% year-over-year
• GAAP Loss Per Share $0.65, compared to diluted EPS of $0.58 in the prior year
• Non-GAAP diluted EPS $0.32, compared to $1.09 in the prior year
• GAAP gross margin 56.5%, compared to 57.5% in the prior year
• Non-GAAP gross margin 57.2%, compared to 58.9% in the prior year
• GAAP operating loss margin 5.8%, compared to GAAP operating profit margin 8.3% in the prior year
• Non-GAAP operating margin 6.2%, compared to 15.2% in the prior year

Inventory Update:

We recorded an additional provision for excess and obsolete (“E&O”) inventory and loss on our supplier commitments of $46.5 million in the fourth quarter and $64.5M during fiscal 2024. The additional provision was taken for certain of the Company’s older products which are scheduled to go end of sale during fiscal year 2025 and for which the excess of such inventories is beyond the demand forecast.

To provide more clarity on the impact of this provision, we provide the following Adjusted Results and the table in – Fiscal Q4 2024 and Full Year 2024 Financial Results Section – that show the results excluding the non-GAAP adjustments, the additional provision for E&O inventory and adjustments for the related tax impact.

Fiscal Fourth Quarter Adjusted Results:

• Revenue $256.7 million
• SaaS ARR $167.0 million
• Non-GAAP diluted EPS $0.19
• Non-GAAP gross margin 63.5%
• Non-GAAP operating margin 13.5%.

Fiscal Year 2024 Adjusted Results:

• Revenue $1,117.2 million
• Non-GAAP diluted EPS $0.68
• Non-GAAP gross margin 63.0%
• Non-GAAP operating margin 11.9%.

Liquidity:

• Q4 ending cash balance was $156.7 million, an increase of $5.7 million from the end of Q3 2024 and a decrease of $78.1 million from the end of Q4 in the prior year.
• Q4 net debt was $33.3 million, a decrease of $8.2 million from net debt of $41.5 million at the end of Q3 2024 and a decrease of $43.1 million from net cash of $9.8 million at the end of Q4 in the prior year.

Recent Key Highlights:

• Extreme has formed a co-innovation alliance with Intel® to enhance native AI capabilities within Extreme’s AI Expert, a native AI solution for network management. The solution is currently in technology preview within Extreme Labs and the company expects to start integrating Extreme AI Expert into Extreme solutions later this fiscal year. The Intel collaboration will help customers leverage a combination of network and device data to drive new Generative AI experiences. Extreme AI Expert leverages Generative AI to make networks smarter, faster and more resilient and helps customers optimize network performance, detect security threats, personalize end-user experiences and reduce operational costs.

• Extreme has completed the rollout of a new high-speed Wi-Fi network at Anfield, home of Liverpool Football Club, with deployment partner Verizon Business. LFC is leveraging ExtremeCloud and ExtremeAnalytics to easily optimize network performance, access real-time data around fan preferences, better customize fan experiences and dramatically streamline operations.

• The Amman Stock Exchange (ASE) in Jordan will deploy a new Fabric-enabled wired and wireless network from Extreme, helping it meet growing demands for network bandwidth and increased security as it modernizes and expands its operations. ASE’s IT team will leverage Extreme Fabric to segment various network services, including guest connectivity, digital applications, CCTV, IP telephony and building management systems, reducing security risks.

• The City of Prescott, Arizona chose Extreme to reimagine its public infrastructure and create a new, operationalized networking model that will support innovation and growth. By moving to a services model for network operations, the City of Prescott will be able to evolve its network alongside the needs of residents, simplifying operations and supporting future growth.

• ebm-papst, the world's leading manufacturer of fans and motors, based in Germany, has partnered with Extreme and Bell Computer-Netzwerke GmbH to advance its IT operations using a wide range of Extreme wired and wireless solutions, managed by ExtremeCloud IQ ("XIQ") with enhanced automation and segmentation using Extreme Fabric. The manufacturer will be able to automate factory operations securely through a simple, easy-to-manage platform also leveraging Extreme NAC.

Fiscal Q4 2024 and Full Year 2024 Financial Results:

(in millions, except percentages and per share information)

 

 

GAAP Results

 

 

Three Months Ended

 

Year Ended

 

 

June 30,

2024

 

June 30,

2023

 

Change

 

June 30,

2024

 

June 30,

2023

 

Change

Product

 

$

152.8

 

 

$

261.7

 

 

$

(108.9

)

 

$

699.3

 

 

$

932.5

 

 

$

(233.2

)

Subscription and support*

 

 

103.9

 

 

 

102.2

 

 

 

1.7

 

 

 

417.9

 

 

 

380.0

 

 

 

37.9

 

Total net revenue

 

$

256.7

 

 

$

363.9

 

 

$

(107.2

)

 

$

1,117.2

 

 

$

1,312.5

 

 

$

(195.3

)

Gross margin

 

 

44.7

%

 

 

58.9

%

 

 

(14.2

)%

 

 

56.5

%

 

 

57.5

%

 

 

(1.0

)%

Operating margin

 

 

(19.1

)%

 

 

10.4

%

 

 

(29.5

)%

 

 

(5.8

)%

 

 

8.3

%

 

 

(14.1

)%

Net income (loss)

 

$

(54.2

)

 

$

25.4

 

 

$

(79.6

)

 

$

(86.0

)

 

$

78.1

 

 

$

(164.1

)

Net income (loss) per diluted share

 

$

(0.42

)

 

$

0.19

 

 

$

(0.61

)

 

$

(0.65

)

 

$

0.58

 

 

$

(1.23

)

 

 

 

Non-GAAP Results

 

 

Three Months Ended

 

Year Ended

 

 

June 30,

2024

 

June 30,

2023

 

Change

 

June 30,

2024

 

June 30,

2023

 

Change

Product

 

$

152.8

 

 

$

261.7

 

 

$

(108.9

)

 

$

699.3

 

 

$

932.5

 

 

$

(233.2

)

Subscription and support*

 

 

103.9

 

 

 

102.2

 

 

 

1.7

 

 

 

417.9

 

 

 

380.0

 

 

 

37.9

 

Total net revenue

 

$

256.7

 

 

$

363.9

 

 

$

(107.2

)

 

$

1,117.2

 

 

$

1,312.5

 

 

$

(195.3

)

Gross margin

 

 

45.4

%

 

 

60.2

%

 

 

(14.8

)%

 

 

57.2

%

 

 

58.9

%

 

 

(1.7

)%

Operating margin

 

 

(4.6

)%

 

 

17.4

%

 

 

(22.0

)%

 

 

6.2

%

 

 

15.2

%

 

 

(9.0

)%

Net income (loss)

 

$

(9.9

)

 

$

43.9

 

 

$

(53.7

)

 

$

43.4

 

 

$

146.3

 

 

$

(103.0

)

Net income (loss) per diluted share

 

$

(0.08

)

 

$

0.33

 

 

$

(0.41

)

 

$

0.32

 

 

$

1.09

 

 

$

(0.77

)

* Prior to fiscal 2024, subscription and support revenue was referred to as service and subscription revenue; however, the composition of subscription and support revenue has not been modified.

The Company's Adjusted Results excluding the Non-GAAP adjustments, the additional provision for E&O inventory and adjustments for the related tax impact recorded during the fourth quarter and during fiscal 2024, would have been as below:

(in millions, except percentages and per share information)

 

 

Adjusted Results1

 

 

Three Months Ended

 

Year Ended

 

 

June 30,

2024

 

June 30,

2023

 

Change

 

June 30,

2024

 

June 30,

2023

 

Change

Total net revenue

 

$

256.7

 

 

$

363.9

 

 

$

(107.2

)

 

$

1,117.2

 

 

$

1,312.5

 

 

$

(195.3

)

Gross margin

 

 

63.5

%

 

 

60.2

%

 

 

3.3

%

 

 

63.0

%

 

 

58.9

%

 

 

4.1

%

Operating margin

 

 

13.5

%

 

 

17.4

%

 

 

(3.9

)%

 

 

11.9

%

 

 

15.2

%

 

 

(3.3

)%

Net income

 

$

24.7

 

 

$

43.9

 

 

$

(19.2

)

 

$

92.7

 

 

$

146.3

 

 

$

(53.6

)

Net income per diluted share

 

$

0.19

 

 

$

0.33

 

 

$

(0.14

)

 

$

0.68

 

 

$

1.09

 

 

$

(0.41

)

1See Inventory Update commentary above

Extreme uses the non-GAAP free cash flow metric as a measure of operating performance. Free cash flow represents GAAP net cash provided by (used in) 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):

Free Cash Flow

Three Months Ended

 

Year Ended

 

June 30,

2024

 

June 30,

2023

 

June 30,

2024

 

June 30,

2023

Cash flow provided by operations

$

15.4

 

 

$

80.7

 

 

$

55.5

 

 

$

249.2

 

Less: Property and equipment capital expenditures

 

(4.5

)

 

 

(5.2

)

 

 

(18.1

)

 

 

(13.8

)

Total free cash flow

$

10.9

 

 

$

75.5

 

 

$

37.4

 

 

$

235.4

 

SaaS ARR: Extreme uses SaaS annual recurring revenue (“SaaS ARR”) to identify the annual recurring revenue of 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 that are accounted for 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 and cash equivalents minus gross debt, as shown in the table below (in millions):

Cash and cash equivalents

 

Gross debt

 

Net cash (debt)

$

156.7

 

 

$

190.0

 

 

$

(33.3

)

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 fiscal 2025, ending September 30, 2024, the Company is targeting:

(in millions, except percentages and per share information)

Low-End

 

High-End

FQ1'25 Guidance – GAAP

 

 

 

 

 

Total net revenue

$

255.0

 

 

$

265.0

 

Gross margin

 

61.2

%

 

 

63.2

%

Operating margin

 

(5.3

)%

 

 

(2.3

)%

Earnings (Loss) per share

$

(0.14

)

 

$

(0.09

)

Shares outstanding used in calculating GAAP EPS

 

131.2

 

 

 

131.2

 

FQ1'25 Guidance – Non-GAAP

 

 

 

 

 

Total net revenue

$

255.0

 

 

$

265.0

 

Gross margin

 

62.0

%

 

 

64.0

%

Operating margin

 

7.8

%

 

 

10.4

%

Earnings per share

$

0.10

 

 

$

0.14

 

Diluted 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'25 guidance:

 

FQ1'25

 

Gross Margin

 

Operating Margin

 

Earnings (Loss) per Share

GAAP

61.2% - 63.2%

 

(5.3%) - (2.3%)

 

($0.14) - ($0.09)

Estimated adjustments for:

 

 

 

 

 

Share-based compensation

0.5%

 

7.7% - 8.0%

 

0.16

Amortization of product intangibles

0.3%

 

0.3%

 

0.01

Amortization of non-product intangibles

—

 

0.2%

 

0.00

Restructuring and related charges

—

 

1.2%

 

0.02

Litigation charges

—

 

1.6%

 

0.03

System transition cost

—

 

1.7% - 1.8%

 

0.04

Tax adjustment

—

 

—

 

(0.03) - (0.02)

Non-GAAP

62.0% - 64.0%

 

7.8% - 10.4%

 

$0.10 - $0.14

The total of percentage rate changes may not equal the total change in all cases due to rounding.

For the full year fiscal 2025, ending June 30, 2025, the Company is targeting (in millions):

 

Low-End

 

 

High-End

FY'25 Guidance

 

 

 

 

Total net revenue

$

1,110.0

 

 

$

1,135.0

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 and fiscal year 2024 results as well as the business outlook for the first quarter of fiscal 2025 ending September 30, 2024, 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, please go to this link (Extreme Networks Q4'24 Earnings Registration) and you will be provided with dial in details. If you would like to participate in the Q&A, please register here: Registration Link for Q&A. 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 profit, non-GAAP gross margin, non-GAAP operating margin, non-GAAP operating income (loss), non-GAAP net income (loss), non-GAAP net income (loss) 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, 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 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 (i) the Company’s business outlook and future operating metrics, and financial and operating results, (ii) global demand, (iii) historic challenges from the multi-year, supply chain constraint cycle, (iv) the Company’s value proposition resonating with enterprise customers and channel partners, (v) the Company’s elimination of channel and inventory headwinds, and (vi) the Company’s ability to benefit from the industry disruption from larger players in the enterprise market 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 results and other future events to differ materially from those suggested or indicated by such forward-looking statements. These include, among others, risks related to global macroeconomic and business trends; 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; political and geopolitical factors; and a dependency on third parties for certain components and for the manufacturing of the Company’s products.

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, 2023, Quarterly Report on Form 10-Q for the quarters ended September 30, 2023, December 31, 2023 and March 31, 2024 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,

2024

 

June 30,

2023

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

156,699

 

 

$

234,826

 

Accounts receivable, net

 

 

89,518

 

 

 

182,045

 

Inventories

 

 

141,032

 

 

 

89,024

 

Prepaid expenses and other current assets

 

 

79,677

 

 

 

70,263

 

Total current assets

 

 

466,926

 

 

 

576,158

 

Property and equipment, net

 

 

43,744

 

 

 

46,448

 

Operating lease right-of-use assets, net

 

 

44,145

 

 

 

34,739

 

Goodwill

 

 

393,709

 

 

 

394,755

 

Intangible assets, net

 

 

10,613

 

 

 

16,063

 

Other assets

 

 

83,457

 

 

 

73,544

 

Total assets

 

$

1,042,594

 

 

$

1,141,707

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

51,423

 

 

$

99,724

 

Accrued compensation and benefits

 

 

42,064

 

 

 

71,367

 

Accrued warranty

 

 

10,942

 

 

 

12,322

 

Current portion of deferred revenue

 

 

306,114

 

 

 

282,475

 

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

 

 

9,326

 

 

 

34,326

 

Current portion, operating lease liabilities

 

 

10,547

 

 

 

10,847

 

Other accrued liabilities

 

 

87,172

 

 

 

64,440

 

Total current liabilities

 

 

517,588

 

 

 

575,501

 

Deferred revenue, less current portion

 

 

268,909

 

 

 

219,024

 

Long-term debt, less current portion, net of unamortized debt issuance costs of $1,735 and $2,409, respectively

 

 

178,265

 

 

 

187,591

 

Operating lease liabilities, less current portion

 

 

41,466

 

 

 

31,845

 

Deferred income taxes

 

 

7,978

 

 

 

7,747

 

Other long-term liabilities

 

 

3,106

 

 

 

3,247

 

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; 148,503 and 143,629 shares issued, respectively; 130,284 and 127,775 shares outstanding, respectively

 

 

149

 

 

 

144

 

Additional paid-in-capital

 

 

1,220,379

 

 

 

1,173,744

 

Accumulated other comprehensive loss

 

 

(15,483

)

 

 

(13,192

)

Accumulated deficit

 

 

(941,962

)

 

 

(855,998

)

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

 

 

(237,801

)

 

 

(187,946

)

Total stockholders’ equity

 

 

25,282

 

 

 

116,752

 

Total liabilities and stockholders’ equity

 

$

1,042,594

 

 

$

1,141,707

 

 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

Year Ended

 

 

June 30,

2024

 

June 30,

2023

 

June 30,

2024

 

June 30,

2023

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

152,721

 

 

$

261,675

 

 

$

699,257

 

 

$

932,454

 

Subscription and support

 

 

103,932

 

 

 

102,235

 

 

 

417,946

 

 

 

380,000

 

Total net revenues

 

 

256,653

 

 

 

363,910

 

 

 

1,117,203

 

 

 

1,312,454

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

114,893

 

 

 

114,030

 

 

 

365,759

 

 

 

426,295

 

Subscription and support

 

 

27,136

 

 

 

35,461

 

 

 

120,613

 

 

 

131,439

 

Total cost of revenues

 

 

142,029

 

 

 

149,491

 

 

 

486,372

 

 

 

557,734

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

37,828

 

 

 

147,645

 

 

 

333,498

 

 

 

506,159

 

Subscription and support

 

 

76,796

 

 

 

66,774

 

 

 

297,333

 

 

 

248,561

 

Total gross profit

 

 

114,624

 

 

 

214,419

 

 

 

630,831

 

 

 

754,720

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

46,565

 

 

 

55,826

 

 

 

211,931

 

 

 

214,270

 

Sales and marketing

 

 

81,020

 

 

 

94,024

 

 

 

345,802

 

 

 

336,906

 

General and administrative

 

 

25,468

 

 

 

25,619

 

 

 

99,938

 

 

 

89,934

 

Acquisition and integration costs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

390

 

Restructuring and related charges

 

 

10,009

 

 

 

540

 

 

 

36,321

 

 

 

2,860

 

Amortization of intangible assets

 

 

510

 

 

 

510

 

 

 

2,041

 

 

 

2,047

 

Total operating expenses

 

 

163,572

 

 

 

176,519

 

 

 

696,033

 

 

 

646,407

 

Operating income (loss)

 

 

(48,948

)

 

 

37,900

 

 

 

(65,202

)

 

 

108,313

 

Interest income

 

 

661

 

 

 

1,100

 

 

 

4,556

 

 

 

3,155

 

Interest expense

 

 

(4,220

)

 

 

(5,729

)

 

 

(16,986

)

 

 

(17,385

)

Other income (expense), net

 

 

(240

)

 

 

(119

)

 

 

133

 

 

 

23

 

Income (loss) before income taxes

 

 

(52,747

)

 

 

33,152

 

 

 

(77,499

)

 

 

94,106

 

Provision for income taxes

 

 

1,456

 

 

 

7,725

 

 

 

8,465

 

 

 

16,032

 

Net income (loss)

 

$

(54,203

)

 

$

25,427

 

 

$

(85,964

)

 

$

78,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share – basic

 

$

(0.42

)

 

$

0.20

 

 

$

(0.65

)

 

$

0.60

 

Net income (loss) per share – diluted

 

$

(0.42

)

 

$

0.19

 

 

$

(0.65

)

 

$

0.58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in per share calculation – basic

 

 

130,093

 

 

 

128,294

 

 

 

132,687

 

 

 

129,437

 

Shares used in per share calculation – diluted

 

 

130,093

 

 

 

132,873

 

 

 

132,687

 

 

 

133,494

 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Year Ended

 

 

June 30,

2024

 

June 30,

2023

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

(85,964

)

 

$

78,074

 

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

 

 

 

 

 

 

Depreciation

 

 

24,134

 

 

 

19,888

 

Amortization of intangible assets

 

 

5,313

 

 

 

14,988

 

Reduction in carrying amount of right-of-use asset

 

 

11,455

 

 

 

12,248

 

Provision for credit losses

 

 

210

 

 

 

459

 

Share-based compensation

 

 

76,763

 

 

 

63,472

 

Deferred income taxes

 

 

80

 

 

 

407

 

Provision for excess and obsolete inventory(1)

 

 

71,068

 

 

 

7,305

 

Non-cash interest expense

 

 

1,060

 

 

 

1,145

 

Other

 

 

(2,496

)

 

 

(8,056

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

92,316

 

 

 

1,593

 

Inventories(1)

 

 

(116,434

)

 

 

(49,132

)

Prepaid expenses and other assets

 

 

(21,212

)

 

 

(1,368

)

Accounts payable

 

 

(48,012

)

 

 

14,733

 

Accrued compensation and benefits

 

 

(29,136

)

 

 

17,137

 

Operating lease liabilities

 

 

(11,528

)

 

 

(15,219

)

Deferred revenue

 

 

76,240

 

 

 

90,102

 

Other current and long-term liabilities

 

 

11,629

 

 

 

1,436

 

Net cash provided by operating activities

 

 

55,486

 

 

 

249,212

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(18,121

)

 

 

(13,800

)

Net cash used in investing activities

 

 

(18,121

)

 

 

(13,800

)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings under revolving facility

 

 

30,000

 

 

 

25,000

 

Payments on revolving facility

 

 

(55,000

)

 

 

—

 

Payments on debt obligations

 

 

(10,000

)

 

 

(108,625

)

Loan fees on borrowings

 

 

—

 

 

 

(3,158

)

Repurchase of common stock

 

 

(49,855

)

 

 

(99,860

)

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

 

 

(30,123

)

 

 

(5,140

)

Deferred payments on an acquisition

 

 

—

 

 

 

(3,000

)

Net cash used in financing activities

 

 

(114,978

)

 

 

(194,783

)

Foreign currency effect on cash and cash equivalents

 

 

(514

)

 

 

(325

)

Net increase (decrease) in cash and cash equivalents

 

 

(78,127

)

 

 

40,304

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

234,826

 

 

 

194,522

 

Cash and cash equivalents at end of period

 

$

156,699

 

 

$

234,826

 

 

 

 

 

 

 

 

(1) The prior period amounts have been reclassified to conform to the current period presentation.

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 profit, non-GAAP gross margin, non-GAAP operating margin, non-GAAP operating income (loss), non-GAAP net income (loss), non-GAAP net income (loss) 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 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.

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 and our enterprise resource planning tools. 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 23.5%.

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 U.S. 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 effective tax rates will be more closely aligned.

Over the next year, our cash taxes will be driven by U.S. 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.

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,

2024

 

June 30,

2023

 

June 30,

2024

 

June 30,

2023

Revenues – GAAP

$

256,653

 

 

$

363,910

 

 

$

1,117,203

 

 

$

1,312,454

 

 

Non-GAAP Gross Margin

Three Months Ended

 

Year Ended

 

June 30,

2024

 

June 30,

2023

 

June 30,

2024

 

June 30,

2023

Gross profit – GAAP

$

114,624

 

 

$

214,419

 

 

$

630,831

 

 

$

754,720

 

Gross margin – GAAP percentage

 

44.7

%

 

 

58.9

%

 

 

56.5

%

 

 

57.5

%

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense, Product

 

547

 

 

 

491

 

 

 

1,899

 

 

 

1,856

 

Share-based compensation expense, Subscription and support

 

700

 

 

 

945

 

 

 

2,994

 

 

 

3,513

 

Amortization of intangibles, Product

 

594

 

 

 

2,230

 

 

 

2,930

 

 

 

9,611

 

Amortization of intangibles, Subscription and support

 

—

 

 

 

815

 

 

 

272

 

 

 

3,258

 

Total adjustments to GAAP gross profit

$

1,841

 

 

$

4,481

 

 

$

8,095

 

 

$

18,238

 

Gross profit – non-GAAP

$

116,465

 

 

$

218,900

 

 

$

638,926

 

 

$

772,958

 

Gross margin – non-GAAP percentage

 

45.4

%

 

 

60.2

%

 

 

57.2

%

 

 

58.9

%

 

Non-GAAP Operating Margin

Three Months Ended

 

Year Ended

 

June 30,

2024

 

June 30,

2023

 

June 30,

2024

 

June 30,

2023

GAAP operating income (loss)

$

(48,948

)

 

$

37,900

 

 

$

(65,202

)

 

$

108,313

 

GAAP operating margin

 

(19.1

)%

 

 

10.4

%

 

 

(5.8

)%

 

 

8.3

%

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense, cost of revenues

 

1,247

 

 

 

1,436

 

 

 

4,893

 

 

 

5,369

 

Share-based compensation expense, R&D

 

3,648

 

 

 

3,889

 

 

 

16,686

 

 

 

14,824

 

Share-based compensation expense, S&M

 

6,318

 

 

 

5,924

 

 

 

26,524

 

 

 

22,250

 

Share-based compensation expense, G&A

 

6,841

 

 

 

5,662

 

 

 

28,660

 

 

 

21,029

 

Acquisition and integration costs

 

—

 

 

 

—

 

 

 

—

 

 

 

390

 

Restructuring and related charges

 

10,009

 

 

 

540

 

 

 

36,321

 

 

 

2,860

 

Litigation charges

 

5,127

 

 

 

4,022

 

 

 

10,545

 

 

 

8,026

 

System transition costs

 

2,816

 

 

 

467

 

 

 

5,262

 

 

 

957

 

Amortization of intangibles

 

1,104

 

 

 

3,555

 

 

 

5,243

 

 

 

14,916

 

Total adjustments to GAAP operating income (loss)

 

37,110

 

 

 

25,495

 

 

 

134,134

 

 

 

90,621

 

Non-GAAP operating income (loss)

$

(11,838

)

 

$

63,395

 

 

$

68,932

 

 

$

198,934

 

Non-GAAP operating margin

 

(4.6

)%

 

 

17.4

%

 

 

6.2

%

 

 

15.2

%

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Income (Loss)

Three Months Ended

 

Year Ended

 

June 30,

2024

 

June 30,

2023

 

June 30,

2024

 

June 30,

2023

GAAP net income (loss)

$

(54,203

)

 

$

25,427

 

 

$

(85,964

)

 

$

78,074

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

18,054

 

 

 

16,911

 

 

 

76,763

 

 

 

63,472

 

Acquisition and integration costs

 

—

 

 

 

—

 

 

 

—

 

 

 

390

 

Restructuring and related charges

 

10,009

 

 

 

540

 

 

 

36,321

 

 

 

2,860

 

Litigation charges

 

5,127

 

 

 

4,022

 

 

 

10,545

 

 

 

8,026

 

System transition costs

 

2,816

 

 

 

467

 

 

 

5,262

 

 

 

957

 

Amortization of intangibles

 

1,104

 

 

 

3,555

 

 

 

5,243

 

 

 

14,916

 

Debt refinancing charges, Interest expense

 

—

 

 

 

1,346

 

 

 

—

 

 

 

1,346

 

Debt refinancing charges, Other income (expense)

 

—

 

 

 

197

 

 

 

—

 

 

 

197

 

Tax effect of non-GAAP adjustments

 

7,230

 

 

 

(8,574

)

 

 

(4,815

)

 

 

(23,933

)

Total adjustments to GAAP net income (loss)

$

44,340

 

 

$

18,464

 

 

$

129,319

 

 

$

68,231

 

Non-GAAP net income (loss)

$

(9,863

)

 

$

43,891

 

 

$

43,355

 

 

$

146,305

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (Loss) per share

 

 

 

 

 

 

 

 

 

 

 

GAAP net income (loss) per share – diluted

$

(0.42

)

 

$

0.19

 

 

$

(0.65

)

 

$

0.58

 

Non-GAAP net income (loss) per share – diluted

$

(0.08

)

 

$

0.33

 

 

$

0.32

 

 

$

1.09

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in net income (loss) per share – diluted:

 

 

 

 

 

 

 

 

 

 

 

GAAP Shares used in per share calculation – basic

 

130,093

 

 

 

128,294

 

 

 

132,687

 

 

 

129,473

 

Potentially dilutive equity awards

 

—

 

 

 

4,579

 

 

 

2,816

 

 

 

4,176

 

GAAP and Non-GAAP shares used in per share calculation – diluted

 

130,093

 

 

 

132,873

 

 

 

135,503

 

 

 

133,649

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240807244641/en/

Investor Relations Stan Kovler 919/595-4196 Investor_relations@extremenetworks.com

Media Contact Amy Aylward 603/952-5138 pr@extremenetworks.com