EXTR
$9.29
Extreme Networks
($.29)
(3.03%)
Earnings Details
3rd Quarter March 2022
Wednesday, April 27, 2022 7:05:00 AM
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Summary

Extreme Networks Guides Below Estimates

Extreme Networks (EXTR) reported 3rd Quarter March 2022 earnings of $0.15 per share on revenue of $285.5 million. The consensus earnings estimate was $0.11 per share on revenue of $280.8 million. Revenue grew 12.7% on a year-over-year basis.

The company said it expects fourth quarter non-GAAP earnings of $0.12 to $0.18 per share on revenue of $265.0 million to $275.0 million. The current consensus earnings estimate is $0.22 per share on revenue of $304.75 million for the quarter ending June 30, 2022.

Extreme Networks Inc is a provider of network infrastructure equipment & services for enterprises, data centers, & service providers. Its customers include businesses, hospitals, hotels, universities, telecommunications companies & government agencies.

Results
Reported Earnings
$0.15
Earnings Whisper
-
Consensus Estimate
$0.11
Reported Revenue
$285.5 Mil
Revenue Estimate
$280.8 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Extreme Networks Reports Third Quarter Fiscal Year 2022 Financial Results

Achieves Record Bookings and Revenue with SaaS ARR Approaching $100 Million

Product Backlog Exceeds $425 Million

Expects FY23 Revenue Growth of 10-15%, Accelerating to Mid-Teens Through 2025

MORRISVILLE, N.C.--(BUSINESS WIRE)--Extreme Networks, Inc. (“Extreme”) (Nasdaq: EXTR) today released financial results for its third fiscal quarter ended March 31, 2022.

Fiscal Third Quarter Results:

  • Revenue $285.5 million, up 13% year-over-year, and up 2% quarter-over-quarter
  • SaaS ARR* $97 million, up 54% year-over-year, and up 10% quarter-over-quarter
  • GAAP EPS $0.10, up from $0.03 in Q3 last year
  • Non-GAAP EPS $0.21, up from $0.16 in Q3 last year
  • GAAP gross margin 56.5% compared to 58.7% in Q3 last year
  • Non-GAAP gross margin 58.0% compared to 61.5% in Q3 last year
  • GAAP operating margin 6.1% compared to 4.4% in Q3 last year
  • Non-GAAP operating margin 12.5% compared to 11.3% in Q3 last year
  • Net cash provided by operating activities of $1.6 million
  • Free Cash Flow of ($2.9) million

“The robust spending environment for enterprise networking and 5G infrastructure is contributing to unprecedented bookings growth at Extreme. Our strong competitive position and the fact that we are taking market share are evident in our record-setting quarterly product revenue backlog of over $425 million. It is also evident in the accelerated adoption of our cloud solutions across all our industry verticals and geos, resulting in 54% growth in our SaaS ARR to nearly $100 million exiting Q3,” stated Ed Meyercord, President and CEO of Extreme.

“While near term supply chain constraints have worsened and will persist through FY23, we were able to deliver on the quarter and secure firm commitments from our suppliers. This gives us confidence in our fourth quarter guide and our ability to significantly increase our revenue growth outlook for FY23 and through FY25. Our product lead times are among the lowest in the industry and we have complete visibility into the specific customer projects that make up our product order backlog. We believe supply constraints will alleviate towards the end of FY23, and expect to unleash unprecedented growth in revenue, cash flow and earnings as constraints ease. In addition, our WAN Edge solutions will help sustain our strong subscription growth outlook,” concluded Meyercord.

Extreme’s Chief Financial Officer Remi Thomas added, “Following another quarter of solid execution, we reiterate our FY22 outlook for double-digit revenue growth and double-digit operating margin. As we turn towards the next several years, we believe sustained demand for our cloud solutions and record backlog will fuel accelerated long-term growth. We expect FY23 revenue growth of 10-15%, accelerating to a mid-teens range, and a non-GAAP gross margin of 64-66% through FY25. We will provide a detailed update to our long-term financial model at our upcoming Investor Day on May 18.”

Recent Key Highlights:

  • In partnership with NetNordic, Extreme established one of the largest existing cloud-managed network infrastructures in Borås Stad, Sweden, transforming the municipality into a smart city. The new, secure Wi-Fi 6 network delivers reliable coverage, improved network capacity, and faster data speeds across the city's services while automating and simplifying network management for the IT team.
  • Marriott Hotel Group Greater China was looking to improve connectivity across its offices and hotels to deliver a state-of-the-art guest experience and support digital amenities like internet-connected elevators. They selected Extreme to deliver easy to deploy and easy to manage wired and wireless solutions, allowing the IT team to focus on value-driven initiatives instead of time-consuming manual tasks and troubleshooting.
  • Extreme announced that King-Chavez Neighborhood of Schools, the School District of Elmbrook, and Smith Vocational and Agricultural High School have selected Extreme to help improve student and teacher experiences and streamline school IT operations. As schools increase their use of technology with virtual learning, STEM, online learning resources, and other initiatives, Extreme helps remove the complexity from network upgrades, delivering high-capacity connectivity, centralized management, and improved network visibility.
  • Stadium deployment plans have been approved for Major League Baseball teams including the Cincinnati Reds, Cleveland Guardians, Miami Marlins, San Diego Padres, and St. Louis Cardinals. Extreme plans on outfitting each stadium with infrastructure including fan-facing Wi-Fi and robust analytics, enabling improved connectivity and greater insights into network activity that teams can use to create new fan experiences and simplify ballpark operations.
  • Extreme will host an in-person investor day on May 18, 2022, at the headquarters of Major League Baseball (MLB) in New York City. The in-person event will begin at 8:30 a.m. ET and will include executive presentations, special guests, and hands-on demonstrations. For more information or to register for the in-person or livestreamed event, visit: https://learn.extremenetworks.com/Investor-Day-May2022.html

Fiscal Q3 2022 Financial Metrics:

(in millions, except percentages and per share information)

 

GAAP Results

 

Three Months Ended

 

March 31,
2022

March 31,
2021

Change

Product

$

198.4

 

$

176.3

 

$

22.1

 

12

%

Service and subscription

 

87.1

 

 

77.1

 

 

10.0

 

13

%

Total net revenue

$

285.5

 

$

253.4

 

$

32.1

 

13

%

Gross margin

 

56.5

%

 

58.7

%

 

(2.2

)%

 

Operating margin

 

6.1

%

 

4.4

%

 

1.7

%

 

Net income

$

12.8

 

$

3.5

 

$

9.3

 

266

%

Net income per diluted share

$

0.10

 

$

0.03

 

$

0.07

 

233

%

 

 

Non-GAAP Results

 

Three Months Ended

 

March 31,
2022

March 31,
2021

Change

Product

$

198.4

 

$

176.3

 

$

22.1

 

12

%

Service and subscription

 

87.1

 

 

77.1

 

 

10.0

 

13

%

Total net revenue

$

285.5

 

$

253.4

 

$

32.1

 

13

%

Gross margin

 

58.0

%

 

61.5

%

 

(3.5

)%

 

Operating margin

 

12.5

%

 

11.3

%

 

1.2

%

 

Net income

$

27.4

 

$

20.7

 

$

6.7

 

33

%

Net income per diluted share

$

0.21

 

$

0.16

 

$

0.05

 

31

%

 
  • Q3 ending cash balance was $166.6 million, a decrease of $7.0 million from the end of Q2. This was primarily driven by the cash usage of $3.8 million for financing activities and $4.5 million for capital expenditures, partially offset by operating cash flow generation of $1.6 million.
  • Q3 accounts receivable balance was $163.0 million, an increase of $29.7 million from the end of Q2 and an increase of $32.4 million from Q3 last year. Days sales outstanding was 51 days, an increase of 7 days from Q2 and an increase of 5 days from Q3 last year.
  • Q3 ending inventory was $37.7 million, an increase of $0.5 million from Q2 and a decrease of $6.2 million from Q3 last year. The quarter-over-quarter increase was primarily driven by an increase in finished goods inventory. The year-over-year decrease in inventory largely reflects improved demand planning, SKU rationalization and higher inventory turnover. In addition, supply constraints in the recent quarters have contributed to the reduction in inventory year-over-year.
  • Q3 ending gross debt** was $315.8 million, a decrease of $7.1 million from the prior quarter. The $35.8 million decrease from Q3 last year resulted primarily from principal payments on our term loan. Q3 ending net debt*** was $149.2 million, a decrease of $0.2 million from $149.4 million in Q2.

Extreme uses the non-GAAP free cash flow metric as a measure of operating performance. Free cash flow represents GAAP net cash provided by operating activities, less purchases of property, plant and equipment. Extreme considers free cash flow to be useful information for management and investors regarding the amount of cash generated by the business after the purchases of property, plant and equipment, which can then be used to, among other things, invest in Extreme’s business, make strategic acquisitions, and strengthen the balance sheet. A limitation of the utility of this non-GAAP free cash flow metric as a measure of financial performance is that it does not represent the total increase or decrease in the Company's cash balance for the period. The following table shows non-GAAP free cash flow calculation (in thousands):

Free Cash Flow

Three Months Ended

 

Nine Months Ended

 

March 31,
2022

 

March 31,
2021

 

March 31,
2022

 

March 31,
2021

Cash flow provided by operations

$

1,573

 

$

24,725

 

$

64,055

 

$

87,496

 

Less: Property and equipment capital expenditures

 

(4,477

)

 

(4,279

)

 

(11,130

)

 

(12,318

)

Total free cash flow

$

(2,904

)

$

20,446

 

$

52,925

 

$

75,178

 

 

*SaaS ARR: Extreme uses SaaS annual recurring revenue (“SaaS ARR”) to identify the annual recurring value of customer contracts at the end of a reporting period. 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 relationship with existing customers. SaaS ARR represents the projected annualized revenue run-rate of active ExtremeCloud™ IQ (XIQ) and other subscription contracts, at the end of a reporting period. Each contract (either fulfilled or yet to be fulfilled) is annualized by dividing the contract value by the number of months in the contract term and then multiplying by 12. Calculated SaaS ARR for each contract is then aggregated to arrive at total SaaS ARR. SaaS ARR should be viewed independently of revenue and does not represent our revenue under U.S. GAAP on an annualized basis. It is an operating metric that can be impacted by contract start and end dates, bookings changes and renewal rates. 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 and current portion of long-term debt as shown on the balance sheet plus unamortized debt issuance costs, if any.

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

Gross debt

Cash

Net debt

$

315.8

$

166.6

$

149.2

 

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 fourth quarter of fiscal 2022, ending June 30, 2022, the Company is targeting:

(in millions, except percentages and per share information)

 

Low-End

 

High-End

FQ4'22 Guidance – GAAP

 

 

 

 

 

 

Total net revenue

$

265.0

 

$

275.0

 

Gross margin

 

55.5

%

 

57.4

%

Operating expenses

$

138.6

 

$

142.9

 

Operating margin

 

3.1

%

 

5.5

%

Net income

$

2.4

 

$

9.3

 

Net income per diluted share

$

0.02

 

$

0.07

 

Shares outstanding used in calculating GAAP EPS

 

134.2

 

 

134.2

 

FQ4’22 Guidance – Non - GAAP

 

 

 

 

 

 

Total net revenue

$

265.0

 

$

275.0

 

Gross margin

 

57.0

%

 

59.0

%

Operating expenses

$

126.9

 

$

130.9

 

Operating margin

 

9.1

%

 

11.4

%

Net income

$

16.7

 

$

23.9

 

Net income per diluted share

$

0.12

 

$

0.18

 

Shares outstanding used in calculating non-GAAP EPS

 

134.2

 

 

134.2

 

 

The following table shows the GAAP to non-GAAP reconciliation for Q4 FY22 guidance:

 

Gross Margin
Rate

 

Operating
Margin Rate

 

Earnings per
Share

GAAP

55.5% - 57.4%

 

3.1% - 5.5%

 

$0.02 - $0.07

Estimated adjustments for:

 

 

 

 

 

Amortization of product intangibles

1.1%

 

1.1%

 

0.02

Share-based compensation

0.2%

 

3.9%

 

0.08

Restructuring

0.0%

 

0.1%

 

0.00

Acquisition and integration costs

 

0.3%

 

0.01

Amortization of non-product intangibles

0.3%

 

0.5%

 

0.01

Tax effect of non-GAAP adjustments

 

 

(0.01)

Non-GAAP

57.0% -59.0%

 

9.1% - 11.4%

 

$0.12 - $0.18

 

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 third fiscal quarter results as well as the business outlook for the fourth quarter ending June 30, 2022, including significant factors and assumptions underlying the targets noted above. The conference call will be available to the public through a live audio web broadcast via the internet at http://investor.extremenetworks.com and a replay of the call will be available on the website for at least 7 days following the call. The conference call may also be heard by dialing 1 (877) 303-9826 or international 1 (224) 357-2194 with Conference ID # 5484548. Supplemental financial information to be discussed during the conference call will be posted in the Investor Relations section of the Company's website www.extremenetworks.com including the non-GAAP reconciliation attached to this press release. The encore recording can be accessed by dialing 1 (855) 859-2056 or international 1 (404) 537-3406. Conference ID # 5484548. The encore recording will be available for at least 7 days following the call.

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 expenses, non-GAAP operating margin, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share, and non-GAAP free cash flow. In preparing non-GAAP information, the Company has excluded, where applicable, the impact of share-based compensation, acquisition and integration costs, amortization of intangibles, and restructuring charges. The Company believes that excluding these items provides both management and investors with additional insight into its current operations, the trends affecting the Company, the Company's marketplace performance, and the Company's ability to generate cash from operations. Please note the Company's non-GAAP measures may be different than those used by other companies. The additional non-GAAP financial information the Company presents should be considered in conjunction with, and not as a substitute for, the Company's GAAP financial information.

The Company has provided a non-GAAP reconciliation of the results for the periods presented in this release, which are adjusted to exclude certain items as indicated. These measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures for comparable financial information and understanding of the Company's ongoing performance as a business. Extreme uses both GAAP and non-GAAP measures to evaluate and manage its operations.

Forward-Looking Statements:

Statements in this press release, including statements regarding those concerning the company’s business outlook and future 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 and forecasted demand from end customers; a highly competitive business environment for network switching equipment and cloud management of network devices; the company’s effectiveness in controlling expenses; the possibility that the company might experience delays in the development or introduction of new technology and products; customer response to the company’s new technology and products; risks related to pending or future litigation; macroeconomic and political and geopolitical factors 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 COVID-19 specifically shutdowns in Asia, and any worsening of the global business and economic environment as a result, on the company’s business.

More information about potential factors that could affect the Company's business and financial results are described in “Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021, Quarterly Report on form 10-Q for the quarter ended September 30, 2021 and December 31, 2021, and other documents of the Company on file with the Securities and Exchange Commission (available at www.sec.gov). As a result of these risks and others, actual results could vary significantly from those anticipated in this press release, and the company’s financial condition and results of operations could be materially adversely affected. Except as required under the U.S. federal securities laws and the rules and regulations of the U.S. Securities and Exchange Commission, Extreme disclaims any obligation to update any forward-looking statements after the date of this release, whether as a result of new information, future events, developments, changes in assumptions or otherwise.

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

March 31,
2022

 

June 30,
2021

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

$

166,566

 

$

246,894

 

Accounts receivable, net

 

162,967

 

 

156,476

 

Inventories

 

37,738

 

 

32,885

 

Prepaid expenses and other current assets

 

79,605

 

 

51,340

 

Total current assets

 

446,876

 

 

487,595

 

Property and equipment, net

 

49,365

 

 

55,004

 

Operating lease right-of-use assets, net

 

28,164

 

 

36,927

 

Intangible assets, net

 

36,689

 

 

36,038

 

Goodwill

 

400,144

 

 

331,159

 

Other assets

 

63,606

 

 

63,370

 

Total assets

$

1,024,844

 

$

1,010,093

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt, net of unamortized debt issuance costs of $2,305 and $2,404, respectively

$

30,945

 

$

23,721

 

Accounts payable

 

68,504

 

 

60,142

 

Accrued compensation and benefits

 

45,151

 

 

71,610

 

Accrued warranty

 

10,576

 

 

11,623

 

Current portion, operating lease liabilities

 

15,804

 

 

18,743

 

Current portion, deferred revenue

 

222,380

 

 

212,412

 

Other accrued liabilities

 

64,430

 

 

57,449

 

Total current liabilities

 

457,790

 

 

455,700

 

Deferred revenue, less current portion

 

150,030

 

 

133,172

 

Long-term debt, less current portion, net of unamortized debt issuance costs of $2,986 and $4,760, respectively

 

279,514

 

 

315,865

 

Operating lease liabilities, less current portion

 

23,919

 

 

32,515

 

Deferred income taxes

 

7,956

 

 

3,828

 

Other long-term liabilities

 

6,372

 

 

14,545

 

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; 139,115 and 133,279 shares issued, respectively; 130,689 and 126,682 shares outstanding, respectively

 

139

 

 

133

 

Additional paid-in-capital

 

1,108,013

 

 

1,078,602

 

Accumulated other comprehensive loss

 

(1,320

)

 

(2,811

)

Accumulated deficit

 

(939,482

)

 

(978,343

)

Treasury stock at cost, 8,426 and 6,597 shares, respectively

 

(68,087

)

 

(43,113

)

Total stockholders’ equity

 

99,263

 

 

54,468

 

Total liabilities and stockholders’ equity

$

1,024,844

 

$

1,010,093

 

 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,
2022

 

March 31,
2021

 

March 31,
2022

 

March 31,
2021

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Product

$

198,373

 

$

176,334

 

$

574,636

 

$

503,575

 

Service and subscription

 

87,135

 

 

77,066

 

 

259,489

 

 

227,755

 

Total net revenues

 

285,508

 

 

253,400

 

 

834,125

 

 

731,330

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

92,582

 

 

76,442

 

 

264,459

 

 

223,842

 

Service and subscription

 

31,568

 

 

28,145

 

 

93,919

 

 

83,465

 

Total cost of revenues

 

124,150

 

 

104,587

 

 

358,378

 

 

307,307

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

105,791

 

 

99,892

 

 

310,177

 

 

279,733

 

Service and subscription

 

55,567

 

 

48,921

 

 

165,570

 

 

144,290

 

Total gross profit

 

161,358

 

 

148,813

 

 

475,747

 

 

424,023

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

49,615

 

 

48,909

 

 

145,461

 

 

147,619

 

Sales and marketing

 

72,840

 

 

70,898

 

 

213,932

 

 

201,955

 

General and administrative

 

17,714

 

 

16,023

 

 

52,594

 

 

48,844

 

Acquisition and integration costs

 

2,833

 

 

 

 

6,456

 

 

1,975

 

Restructuring and related charges

 

407

 

 

425

 

 

978

 

 

2,121

 

Amortization of intangibles

 

638

 

 

1,406

 

 

2,596

 

 

4,704

 

Total operating expenses

 

144,047

 

 

137,661

 

 

422,017

 

 

407,218

 

Operating income

 

17,311

 

 

11,152

 

 

53,730

 

 

16,805

 

Interest income

 

109

 

 

81

 

 

302

 

 

281

 

Interest expense

 

(2,794

)

 

(5,594

)

 

(9,750

)

 

(18,325

)

Other income (expense), net

 

54

 

 

269

 

 

297

 

 

(1,572

)

Income (loss) before income taxes

 

14,680

 

 

5,908

 

 

44,579

 

 

(2,811

)

Provision for income taxes

 

1,856

 

 

2,436

 

 

5,718

 

 

5,579

 

Net income (loss)

$

12,824

 

$

3,472

 

$

38,861

 

$

(8,390

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share - basic

$

0.10

 

$

0.03

 

$

0.30

 

$

(0.07

)

Net income (loss) per share - diluted

$

0.10

 

$

0.03

 

$

0.29

 

$

(0.07

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in per share calculation - basic

 

129,913

 

 

124,788

 

 

129,321

 

 

123,252

 

Shares used in per share calculation - diluted

 

133,415

 

 

129,988

 

 

133,779

 

 

123,252

 

 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

Nine Months Ended

 

 

 

March 31,
2022

 

March 31,
2021

Cash flows from operating activities:

 

 

 

 

 

 

Net Income (loss)

$

38,861

 

$

(8,390

)

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

 

 

 

 

 

 

Depreciation

 

15,324

 

 

17,801

 

Amortization of intangible assets

 

15,670

 

 

24,501

 

Reduction in carrying amount of right-of-use asset

 

11,641

 

 

12,129

 

Provision for doubtful accounts

 

(3

)

 

270

 

Share-based compensation

 

32,630

 

 

27,595

 

Deferred income taxes

 

228

 

 

741

 

Non-cash interest expense

 

3,611

 

 

3,195

 

Other

 

41

 

 

2,770

 

Changes in operating assets and liabilities, net of acquisition:

 

 

 

 

 

 

Accounts receivable

 

(5,068

)

 

(8,101

)

Inventories

 

(4,925

)

 

11,869

 

Prepaid expenses and other assets

 

(28,054

)

 

(7,908

)

Accounts payable

 

8,481

 

 

7,900

 

Accrued compensation and benefits

 

(28,227

)

 

351

 

Operating lease liabilities

 

(14,524

)

 

(14,983

)

Deferred revenue

 

16,725

 

 

27,233

 

Other current and long-term liabilities

 

1,644

 

 

(9,477

)

Net cash provided by operating activities

 

64,055

 

 

87,496

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

(11,130

)

 

(12,318

)

Business acquisition, net of cash acquired

 

(69,517

)

 

 

Net cash used in investing activities

 

(80,647

)

 

(12,318

)

Cash flows from financing activities:

 

 

 

 

 

 

Payments on debt obligations

 

(31,000

)

 

(69,250

)

Repurchase of common stock

 

(24,974

)

 

 

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

 

(3,213

)

 

7,167

 

Payment of contingent consideration obligations

 

(1,024

)

 

(1,298

)

Deferred payments on an acquisition

 

(3,000

)

 

(3,000

)

Net cash used in financing activities

 

(63,211

)

 

(66,381

)

 

 

 

 

 

 

 

Foreign currency effect on cash

 

(525

)

 

470

 

 

 

 

 

 

 

 

Net (decrease) increase in cash

 

(80,328

)

 

9,267

 

 

 

 

 

 

 

 

Cash at beginning of period

 

246,894

 

 

193,872

 

Cash at end of period

$

166,566

 

$

203,139

 

 

Extreme Networks, Inc.
Non-GAAP Measures of Financial Performance

To supplement the Company's consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (“GAAP”), Extreme uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating margin, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share, 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, 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, legal and professional fees related to the acquisition of Aerohive Networks and 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 is 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 for which the period expense does not impact the operations of the business and are non-cash in nature.

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

Tax effect of non-GAAP adjustments. 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 24.2%.

Non-GAAP provision for income taxes may be higher or lower depending on the level and jurisdictional mix of pre-tax income and available U.S. research and development tax credits. As of the tax year ended June 30, 2021, we had U.S. federal net operating loss carryforwards of $242 million, state net operating loss carryforwards of $156 million and Irish net operating losses of $15 million. These amounts were reflected in our requisite tax filings for each jurisdiction for the tax year ended June 30, 2021. We anticipate utilization of a portion of these net operating losses in each of the jurisdictions for the tax year ended June 30, 2022; however, we do not expect to pay substantial taxes on a GAAP basis in the U.S. in the near term due to our net operating loss carryforward balances. Over the near term, most of our cash taxes will continue to be mainly driven by the tax expense of our foreign subsidiaries which amounts have not historically been significant, with the exception of the Company’s Irish operating company which fully utilized available net operating loss carryforwards during fiscal 2021. We also believe our long-term effective GAAP tax rate will be lower than the U.S. statutory rate based upon our established tax structure.

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

GAAP TO NON-GAAP RECONCILIATION

(In thousands, except percentages and per share amounts)

(Unaudited)

 

 

 

 

 

Revenues

 

Three Months Ended

 

Nine Months Ended

 

March 31,
2022

March 31,
2021

March 31,
2022

March 31,
2021

Revenues - GAAP

$

285,508

$

253,400

$

834,125

$

731,330

 

Non-GAAP Gross Margin

Three Months Ended

 

 

Nine Months Ended

 

 

March 31,
2022

 

 

March 31,
2021

 

 

March 31,
2022

 

 

March 31,
2021

 

Gross profit - GAAP

$

161,358

 

$

148,813

 

$

475,747

 

$

424,023

 

Gross margin - GAAP percentage

 

56.5

%

 

58.7

%

 

57.0

%

 

58.0

%

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

634

 

 

709

 

 

1,960

 

 

2,092

 

Acquisition and integration costs

 

 

 

 

 

 

 

10

 

Amortization of intangibles

 

3,620

 

 

6,431

 

 

13,020

 

 

19,697

 

Total adjustments to GAAP gross profit

$

4,254

 

$

7,140

 

$

14,980

 

$

21,799

 

Gross profit - non-GAAP

$

165,612

 

$

155,953

 

$

490,727

 

$

445,822

 

Gross margin - non-GAAP percentage

 

58.0

%

 

61.5

%

 

58.8

%

 

61.0

%

 

Non-GAAP Operating Income

Three Months Ended

 

 

Nine Months Ended

 

 

March 31,
2022

 

March 31,
2021

 

March 31,
2022

 

March 31,
2021

GAAP operating income

$

17,311

 

$

11,152

 

$

53,730

 

$

16,805

 

GAAP operating income percentage

 

6.1

%

 

4.4

%

 

6.4

%

 

2.3

%

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense, cost of revenues

 

634

 

 

709

 

 

1,960

 

 

2,092

 

Share-based compensation expense, R&D

 

2,446

 

 

2,414

 

 

7,568

 

 

7,380

 

Share-based compensation expense, S&M

 

3,832

 

 

3,150

 

 

11,267

 

 

9,036

 

Share-based compensation expense, G&A

 

3,941

 

 

2,925

 

 

11,835

 

 

9,087

 

Acquisition and integration costs

 

2,833

 

 

 

 

6,456

 

 

1,985

 

Restructuring charges, net of reversals

 

407

 

 

425

 

 

978

 

 

2,121

 

Amortization of intangibles

 

4,258

 

 

7,837

 

 

15,616

 

 

24,401

 

Total adjustments to GAAP operating income

$

18,351

 

$

17,460

 

$

55,680

 

$

56,102

 

Non-GAAP operating income

$

35,662

 

$

28,612

 

$

109,410

 

$

72,907

 

Non-GAAP operating income percentage

 

12.5

%

 

11.3

%

 

13.1

%

 

10.0

%

 

Non-GAAP net income

Three Months Ended

Nine Months Ended

 

March 31,
2022

 

March 31,
2021

March 31,
2022

 

March 31,
2021

GAAP net income (loss)

$

12,824

 

$

3,472

 

$

38,861

 

$

(8,390

)

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

10,853

 

 

9,198

 

 

32,630

 

 

27,595

 

Acquisition and integration costs

 

2,833

 

 

 

 

6,456

 

 

1,985

 

Restructuring charge, net of reversal

 

407

 

 

425

 

 

978

 

 

2,121

 

Amortization of intangibles

 

4,258

 

 

7,837

 

 

15,616

 

 

24,401

 

Tax effect of non-GAAP adjustments

 

(3,760

)

 

(259

)

 

(10,740

)

 

(94

)

Total adjustments to GAAP net income (loss)

$

14,591

 

$

17,201

 

$

44,940

 

$

56,008

 

Non-GAAP net income

$

27,415

 

$

20,673

 

$

83,801

 

$

47,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net income per share-diluted

$

0.21

 

$

0.16

 

$

0.63

 

$

0.38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in net income per share - diluted:

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Shares used in per share calculation - basic

 

129,913

 

 

124,788

 

 

129,321

 

 

123,252

 

Potentially dilutive equity awards

 

3,502

 

 

5,200

 

 

4,458

 

 

2,855

 

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

 

133,415

 

 

129,988

 

 

133,779

 

 

126,107

 

 

 

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

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

Source: Extreme Networks, Inc.