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Extreme Networks Reports Third Quarter Fiscal Year 2024 Financial Results

Financial Results in-line With Previous Outlook

38% Growth in SaaS ARR

Extreme Networks, Inc. (“Extreme”) (Nasdaq: EXTR) today released financial results for its third quarter ended March 31, 2024.

"Extreme’s focus on the intersection of networking, security, and AI is creating a compelling value proposition that's resonating with customers and driving significant traction in our business. Net new logos grew double-digits this quarter, particularly in the Americas. Our SaaS ARR grew again by 38%, as we continue to deliver on our promise of creating flexibility and simplicity with One Network, One Cloud. Our competitive positioning in the market has never been stronger, as we believe key competitors are either distracted by portfolio rationalization and integration or have lost their focus on networking. Meanwhile, Extreme remains solely focused on our customers' networking needs," said Ed Meyercord, President and Chief Executive Officer.

"Consistent with our expectations, channel inventory was significantly reduced during the quarter. Heading into the fourth quarter, we expect sequential growth in revenue, but note that the networking industry is still impacted by customers working through their prior purchases. Our expanded go to market opportunities around the integration of networking, security, and AI, give us confidence that we are positioned for a return to growth in FY25," concluded Meyercord.

Kevin Rhodes, Executive Vice President and Chief Financial Officer stated, "During the quarter we took actions to improve our operating expense profile that will once again lead to double-digit operating margins and strong cash flow. We expect to return to solid profitability and cash flow generation during the fourth quarter."

Fiscal Third Quarter Results:

  • Revenue $211.0 million, down 36.5% year-over-year
  • SaaS ARR $162.0 million, up 38.0% year-over-year
  • GAAP diluted EPS ($0.50), compared to $0.17 in the prior year quarter
  • Non-GAAP diluted EPS ($0.19), compared to $0.29 in the prior year quarter
  • GAAP gross margin 56.8% compared to 57.7% in the prior year quarter
  • Non-GAAP gross margin 57.6% compared to 59.1% in the prior year quarter
  • GAAP operating margin (29.6%) compared to 8.9% in the prior year quarter
  • Non-GAAP operating margin (12.2%) compared to 15.6% in the prior year quarter

Liquidity:

  • Q3 ending cash balance was $151.0 million, a decrease of $70.4 million from the end of Q2 2024 and an increase of $52.0 million from the end of Q3 in the prior year.
  • Q3 net debt was $41.5 million, a decrease of $67.9 million from net cash of $26.4 million at the end of Q2 2024 and an increase of $7.5 million from net debt of $34.0 million at the end of Q3 in the prior year.

Recent Key Highlights:

  • At Extreme Connect 2024, the company made a number of exciting announcements including:
    • Extreme Labs: a hub for research and innovation in networking. The company provided the first tech preview from Labs: Extreme AI Expert: a Generative AI solution that creates a futuristic way to design, optimize and deploy networks.
    • Extreme is the first vendor with significant outdoor Wi-Fi 6E deployments to receive a standard power grant, allowing customers to leverage faster speeds, increased range of coverage and expanded capacity for outdoor connectivity.
  • During Extreme Connect 2024, Extreme recognized Kroger, Texas Tech University, the San Francisco Giants and Korean Air as 2024 X-Factor Customer Award winners. These awards recognize Extreme’s most innovative customers; nominees were evaluated and selected by Extreme Networks employees based on three areas of measure: innovation, demonstrated value, and unique problem-solving.
  • Extreme was named as a Leader by Gartner, Inc. for the sixth consecutive year in the Gartner Magic Quadrant for Enterprise Wired and Wireless Local Access Network (LAN) Infrastructure*. Of the 12 companies in the Magic Quadrant, Extreme Networks was named a Leader for both vision and execution. Extreme continues to innovate at the intersection of AI, networking and security.
  • Borussia Dortmund, one of the largest football clubs in Germany, will deploy Wi-Fi 6E-ready network solutions from Extreme, as well as network Fabric and ExtremeAnalytics, to modernize experiences throughout team facilities and the stadium and set the foundation for future technology like in-seat concessions ordering and in-stadium AR/VR.
  • Bangor University has improved its wireless network across its Wales campus by deploying Extreme’s Wi-Fi access points to scale and secure high-bandwidth connectivity, more easily handle the ever-increasing load of media-rich content and devices and allow students to access educational systems and stream videos without delay from anywhere on campus.
  • Washington University in St. Louis, one of the country’s top universities, selected Extreme to modernize its network infrastructure and create a strategic foundation for delivering innovative and secure technology-based learning. Extreme’s fabric solutions will help the university create a simple, scalable and secure network across the campus.

*Gartner, Magic Quadrant for Enterprise Wired and Wireless LAN Infrastructure, March 2024

GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally, and MAGIC QUADRANT is a registered trademark of Gartner, Inc. and/or its affiliates and are used herein with permission. All rights reserved.

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

The Gartner content described herein, (the "Gartner Content") represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ("Gartner"), and are not representations of fact. Gartner Content speaks as of its original publication date (and not as of the date of this Current Report on Form 8-K) and the opinions expressed in the Gartner Content are subject to change without notice.

Fiscal Q3 2024 Financial Metrics:

(in millions, except percentages and per share information)

 

 

 

GAAP Results

 

 

Three Months Ended

 

 

March 31,

2024

 

March 31,

2023

 

Change

Product

 

$

106.4

 

 

$

241.1

 

 

$

(134.7

)

Subscription and support*

 

 

104.6

 

 

 

91.4

 

 

 

13.2

 

Total net revenue

 

$

211.0

 

 

$

332.5

 

 

$

(121.5

)

Gross margin

 

 

56.8

%

 

 

57.7

%

 

 

(0.9

)%

Operating margin

 

 

(29.6

)%

 

 

8.9

%

 

 

(38.5

)%

Net income (loss)

 

$

(64.4

)

 

$

22.1

 

 

$

(86.5

)

Net income (loss) per diluted share

 

$

(0.50

)

 

$

0.17

 

 

$

(0.67

)

 

 

Non-GAAP Results

 

 

Three Months Ended

 

 

March 31,

2024

 

March 31,

2023

 

Change

Product

 

$

106.4

 

 

$

241.1

 

 

$

(134.7

)

Subscription and support*

 

 

104.6

 

 

 

91.4

 

 

 

13.2

 

Total net revenue

 

$

211.0

 

 

$

332.5

 

 

$

(121.5

)

Gross margin

 

 

57.6

%

 

 

59.1

%

 

 

(1.5

)%

Operating margin

 

 

(12.2

)%

 

 

15.6

%

 

 

(27.8

)%

Net income (loss)

 

$

(24.8

)

 

$

38.8

 

 

$

(63.6

)

Net income (loss) per diluted share

 

$

(0.19

)

 

$

0.29

 

 

$

(0.48

)

* 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.

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

 

Nine Months Ended

 

March 31,

2024

 

March 31,

2023

 

March 31,

2024

 

March 31,

2023

Cash flow provided by (used in) operations

$

(69.9

)

 

$

48.2

 

 

$

40.0

 

 

$

168.5

 

Less: Property and equipment capital expenditures

 

(3.7

)

 

 

(2.4

)

 

 

(13.6

)

 

 

(8.6

)

Total free cash flow

$

(73.6

)

 

$

45.8

 

 

$

26.4

 

 

$

159.9

 

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)

$

151.0

 

$

192.5

 

$

(41.5

)

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 and full year of fiscal 2024, ending June 30, 2024, the Company is targeting:

(in millions, except percentages and per share information)

GAAP

 

Non-GAAP

FQ4'24 Guidance

 

 

 

Total net revenue

$250.0 - $260.0

 

$250.0 - $260.0

Gross margin

60.9% - 62.9%

 

61.6% - 63.6%

Operating margin

(3.8%) - (0.9%)

 

9.0% - 11.5%

Earnings per diluted share

($0.11) - ($0.05)

 

$0.11 - $0.15

Shares outstanding used in calculating diluted EPS

130.1

 

131.1

FY'24 Guidance

 

 

 

Total net revenue

$1,110.5 - $1,120.5

 

$1,110.5 - $1,120.5

Gross margin

60.2% - 60.6%

 

60.9% -61.4%

Operating margin

(2.4%) - (1.7%)

 

9.3% - 9.9%

Earnings per diluted share

($0.35) - ($0.30)

 

$0.51 - $0.55

Shares outstanding used in calculating diluted EPS

129.3

 

131.6

The following table shows the GAAP to non-GAAP reconciliation for Q4 FY'24 and full year FY’24 guidance:

 

FQ4'24

 

FY'24

 

Gross Margin

 

Operating

Margin

 

Earnings per

Share

 

Gross Margin

 

Operating

Margin

 

Earnings per

Share

GAAP

60.9% - 62.9%

 

(3.8%) - (0.9%)

 

($0.11) - ($0.05)

 

60.2% - 60.6%

 

(2.4%) - (1.7%)

 

($0.35) - ($0.30)

Estimated adjustments for:

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

0.4%

 

7.5% - 7.8%

 

0.15

 

0.5%

 

7.0%

 

0.60

Amortization of product intangibles

0.3%

 

0.3%

 

0.00

 

0.3%

 

0.3%

 

0.02

Amortization of non-product intangibles

 

0.2%

 

0.00

 

 

0.2%

 

0.01

Restructuring and related charges

 

2.7% - 2.8%

 

0.05

 

 

3.0%

 

0.26

Litigation charges

 

0.9%

 

0.02

 

 

0.7%

 

0.06

System transition cost

 

0.8%

 

0.02

 

 

0.4%

 

0.03

Tax adjustment

 

 

(0.02) - (0.04)

 

 

 

(0.12) - (0.13)

Non-GAAP

61.6% - 63.6%

 

9.0% - 11.5%

 

$0.11-$0.15

 

60.9% - 61.4%

 

9.3% - 9.9%

 

$0.51-$0.55

 

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 quarter results of fiscal 2024 as well as the business outlook for the fourth quarter of fiscal 2024 ending June 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 Q3'24 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 [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 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 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 and December 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)

 

 

 

March 31,

2024

 

June 30,

2023

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

151,007

 

 

$

234,826

 

Accounts receivable, net

 

 

94,438

 

 

 

182,045

 

Inventories

 

 

185,357

 

 

 

89,024

 

Prepaid expenses and other current assets

 

 

75,182

 

 

 

70,263

 

Total current assets

 

 

505,984

 

 

 

576,158

 

Property and equipment, net

 

 

47,254

 

 

 

46,448

 

Operating lease right-of-use assets, net

 

 

44,236

 

 

 

34,739

 

Intangible assets, net

 

 

11,789

 

 

 

16,063

 

Goodwill

 

 

394,177

 

 

 

394,755

 

Other assets

 

 

82,028

 

 

 

73,544

 

Total assets

 

$

1,085,468

 

 

$

1,141,707

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

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

 

$

9,326

 

 

$

34,326

 

Accounts payable

 

 

81,483

 

 

 

99,724

 

Accrued compensation and benefits

 

 

44,053

 

 

 

71,367

 

Accrued warranty

 

 

11,067

 

 

 

12,322

 

Current portion, operating lease liabilities

 

 

9,989

 

 

 

10,847

 

Current portion, deferred revenue

 

 

299,580

 

 

 

282,475

 

Other accrued liabilities

 

 

72,804

 

 

 

64,440

 

Total current liabilities

 

 

528,302

 

 

 

575,501

 

Deferred revenue, less current portion

 

 

258,731

 

 

 

219,024

 

Long-term debt, less current portion, net of unamortized debt issuance costs of $1,903 and $2,409, respectively

 

 

180,597

 

 

 

187,591

 

Operating lease liabilities, less current portion

 

 

42,248

 

 

 

31,845

 

Deferred income taxes

 

 

7,476

 

 

 

7,747

 

Other long-term liabilities

 

 

3,152

 

 

 

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; 148,105 and 143,629 shares issued, respectively; 129,886 and 127,775 shares outstanding, respectively

 

 

148

 

 

 

144

 

Additional paid-in-capital

 

 

1,204,885

 

 

 

1,173,744

 

Accumulated other comprehensive loss

 

 

(14,511

)

 

 

(13,192

)

Accumulated deficit

 

 

(887,759

)

 

 

(855,998

)

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

 

 

(237,801

)

 

 

(187,946

)

Total stockholders’ equity

 

 

64,962

 

 

 

116,752

 

Total liabilities and stockholders’ equity

 

$

1,085,468

 

 

$

1,141,707

 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

March 31,

2024

 

March 31,

2023

 

March 31,

2024

 

March 31,

2023

Net revenues:

 

 

 

 

 

 

 

 

Product

 

$

106,442

 

 

$

241,058

 

 

$

546,536

 

 

$

670,779

 

Subscription and support

 

 

104,594

 

 

 

91,449

 

 

 

314,014

 

 

 

277,765

 

Total net revenues

 

 

211,036

 

 

 

332,507

 

 

 

860,550

 

 

 

948,544

 

Cost of revenues:

 

 

 

 

 

 

 

 

Product

 

 

60,837

 

 

 

108,915

 

 

 

250,866

 

 

 

312,265

 

Subscription and support

 

 

30,298

 

 

 

31,654

 

 

 

93,477

 

 

 

95,978

 

Total cost of revenues

 

 

91,135

 

 

 

140,569

 

 

 

344,343

 

 

 

408,243

 

Gross profit:

 

 

 

 

 

 

 

 

Product

 

 

45,605

 

 

 

132,143

 

 

 

295,670

 

 

 

358,514

 

Subscription and support

 

 

74,296

 

 

 

59,795

 

 

 

220,537

 

 

 

181,787

 

Total gross profit

 

 

119,901

 

 

 

191,938

 

 

 

516,207

 

 

 

540,301

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

54,517

 

 

 

54,837

 

 

 

165,366

 

 

 

158,444

 

Sales and marketing

 

 

87,708

 

 

 

83,962

 

 

 

264,782

 

 

 

242,882

 

General and administrative

 

 

25,213

 

 

 

21,683

 

 

 

74,470

 

 

 

64,315

 

Acquisition and integration costs

 

 

 

 

 

 

 

 

 

 

 

390

 

Restructuring and related charges

 

 

14,421

 

 

 

1,363

 

 

 

26,312

 

 

 

2,320

 

Amortization of intangible assets

 

 

511

 

 

 

510

 

 

 

1,531

 

 

 

1,537

 

Total operating expenses

 

 

182,370

 

 

 

162,355

 

 

 

532,461

 

 

 

469,888

 

Operating income (loss)

 

 

(62,469

)

 

 

29,583

 

 

 

(16,254

)

 

 

70,413

 

Interest income

 

 

1,239

 

 

 

774

 

 

 

3,895

 

 

 

2,055

 

Interest expense

 

 

(4,179

)

 

 

(3,946

)

 

 

(12,766

)

 

 

(11,656

)

Other income (expense), net

 

 

361

 

 

 

(367

)

 

 

373

 

 

 

142

 

Income (loss) before income taxes

 

 

(65,048

)

 

 

26,044

 

 

 

(24,752

)

 

 

60,954

 

Provision for (benefit from) income taxes

 

 

(623

)

 

 

3,913

 

 

 

7,009

 

 

 

8,307

 

Net income (loss)

 

$

(64,425

)

 

$

22,131

 

 

$

(31,761

)

 

$

52,647

 

 

 

 

 

 

 

 

 

 

Basic and diluted income (loss) per share:

 

 

 

 

 

 

 

 

Net income (loss) per share – basic

 

$

(0.50

)

 

$

0.17

 

 

$

(0.25

)

 

$

0.41

 

Net income (loss) per share – diluted

 

$

(0.50

)

 

$

0.17

 

 

$

(0.25

)

 

$

0.39

 

 

 

 

 

 

 

 

 

 

Shares used in per share calculation – basic

 

 

129,299

 

 

 

128,816

 

 

 

129,021

 

 

 

129,864

 

Shares used in per share calculation – diluted

 

 

129,299

 

 

 

133,025

 

 

 

129,021

 

 

 

133,716

 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

March 31,

2024

 

March 31,

2023

Cash flows from operating activities:

 

 

 

 

Net income (loss)

 

$

(31,761

)

 

$

52,647

 

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

 

 

 

 

Depreciation

 

 

13,821

 

 

 

15,014

 

Amortization of intangible assets

 

 

4,192

 

 

 

11,415

 

Reduction in carrying amount of right-of-use asset

 

 

8,834

 

 

 

9,274

 

Provision for credit losses

 

 

1,770

 

 

 

245

 

Share-based compensation

 

 

58,709

 

 

 

46,561

 

Deferred income taxes

 

 

(153

)

 

 

338

 

Non-cash interest expense

 

 

795

 

 

 

756

 

Other

 

 

(3,225

)

 

 

(6,148

)

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable, net

 

 

85,837

 

 

 

25,216

 

Inventories

 

 

(97,589

)

 

 

(21,989

)

Prepaid expenses and other assets

 

 

(13,855

)

 

 

2,226

 

Accounts payable

 

 

(17,340

)

 

 

12,570

 

Accrued compensation and benefits

 

 

(27,252

)

 

 

(6,158

)

Operating lease liabilities

 

 

(8,780

)

 

 

(11,172

)

Deferred revenue

 

 

59,301

 

 

 

46,502

 

Other current and long-term liabilities

 

 

6,693

 

 

 

(8,778

)

Net cash provided by operating activities

 

 

39,997

 

 

 

168,519

 

Cash flows from investing activities:

 

 

 

 

Capital expenditures

 

 

(13,632

)

 

 

(8,634

)

Net cash used in investing activities

 

 

(13,632

)

 

 

(8,634

)

Cash flows from financing activities:

 

 

 

 

Payments on revolving facility

 

 

(25,000

)

 

 

 

Payments on debt obligations

 

 

(7,500

)

 

 

(71,625

)

Repurchase of common stock

 

 

(49,855

)

 

 

(74,807

)

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

 

 

(27,564

)

 

 

(1,685

)

Deferred payments on an acquisition

 

 

 

 

 

(3,000

)

Net cash used in financing activities

 

 

(109,919

)

 

 

(151,117

)

Foreign currency effect on cash and cash equivalents

 

 

(265

)

 

 

(294

)

Net increase (decrease) in cash and cash equivalents

 

 

(83,819

)

 

 

8,474

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

234,826

 

 

 

194,522

 

Cash and cash equivalents at end of period

 

$

151,007

 

 

$

202,996

 

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. 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.

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 26.5%.

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 US and a portion of its Irish deferred tax assets due to historical losses. Once these valuation allowances are released, the non-GAAP and the GAAP provision for income taxes will be more closely aligned.

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

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,

2024

 

March 31,

2023

 

March 31,

2024

 

March 31,

2023

Revenues – GAAP

$

211,036

 

 

$

332,507

 

 

$

860,550

 

 

$

948,544

 

Non-GAAP Gross Margin

Three Months Ended

 

Nine Months Ended

 

March 31,

2024

 

March 31,

2023

 

March 31,

2024

 

March 31,

2023

Gross profit – GAAP

$

119,901

 

 

$

191,938

 

 

$

516,207

 

 

$

540,301

 

Gross margin – GAAP percentage

 

56.8

%

 

 

57.7

%

 

 

60.0

%

 

 

57.0

%

Adjustments:

 

 

 

 

 

 

 

Share-based compensation expense, Product

 

405

 

 

 

492

 

 

 

1,352

 

 

 

1,365

 

Share-based compensation expense, Subscription and support

 

679

 

 

 

930

 

 

 

2,294

 

 

 

2,568

 

Amortization of intangibles, Product

 

599

 

 

 

2,220

 

 

 

2,336

 

 

 

7,381

 

Amortization of intangibles, Subscription and support

 

 

 

 

815

 

 

 

272

 

 

 

2,444

 

Total adjustments to GAAP gross profit

$

1,683

 

 

$

4,457

 

 

$

6,254

 

 

$

13,758

 

Gross profit – non-GAAP

$

121,584

 

 

$

196,395

 

 

$

522,461

 

 

$

554,059

 

Gross margin – non-GAAP percentage

 

57.6

%

 

 

59.1

%

 

 

60.7

%

 

 

58.4

%

Non-GAAP Operating Margin

Three Months Ended

 

Nine Months Ended

 

March 31,

2024

 

March 31,

2023

 

March 31,

2024

 

March 31,

2023

GAAP operating income (loss)

$

(62,469

)

 

$

29,583

 

 

$

(16,254

)

 

$

70,413

 

GAAP operating margin

 

(29.6

)%

 

 

8.9

%

 

 

(1.9

)%

 

 

7.4

%

Adjustments:

 

 

 

 

 

 

 

Share-based compensation expense, cost of revenues

 

1,084

 

 

 

1,422

 

 

 

3,646

 

 

 

3,933

 

Share-based compensation expense, R&D

 

4,226

 

 

 

3,883

 

 

 

13,038

 

 

 

10,935

 

Share-based compensation expense, S&M

 

5,683

 

 

 

5,777

 

 

 

20,206

 

 

 

16,326

 

Share-based compensation expense, G&A

 

6,840

 

 

 

4,294

 

 

 

21,819

 

 

 

15,367

 

Acquisition and integration costs

 

 

 

 

 

 

 

 

 

 

390

 

Restructuring and related charges

 

14,421

 

 

 

1,363

 

 

 

26,312

 

 

 

2,320

 

Litigation charges

 

2,605

 

 

 

1,680

 

 

 

5,418

 

 

 

4,003

 

System transition costs

 

847

 

 

 

490

 

 

 

2,446

 

 

 

490

 

Amortization of intangibles

 

1,110

 

 

 

3,545

 

 

 

4,139

 

 

 

11,362

 

Total adjustments to GAAP operating income (loss)

 

36,816

 

 

 

22,454

 

 

 

97,024

 

 

 

65,126

 

Non-GAAP operating income (loss)

$

(25,653

)

 

$

52,037

 

 

$

80,770

 

 

$

135,539

 

Non-GAAP operating margin

 

(12.2

)%

 

 

15.6

%

 

 

9.4

%

 

 

14.3

%

Non-GAAP Net Income (Loss)

Three Months Ended

 

Nine Months Ended

 

March 31,

2024

 

March 31,

2023

 

March 31,

2024

 

March 31,

2023

GAAP net income (loss)

$

(64,425

)

 

$

22,131

 

 

$

(31,761

)

 

$

52,647

 

Adjustments:

 

 

 

 

 

 

 

Share-based compensation expense

 

17,833

 

 

 

15,376

 

 

 

58,709

 

 

 

46,561

 

Acquisition and integration costs

 

 

 

 

 

 

 

 

 

 

390

 

Restructuring and related charges

 

14,421

 

 

 

1,363

 

 

 

26,312

 

 

 

2,320

 

Litigation charges

 

2,605

 

 

 

1,680

 

 

 

5,418

 

 

 

4,003

 

System transition costs

 

847

 

 

 

490

 

 

 

2,446

 

 

 

490

 

Amortization of intangibles

 

1,110

 

 

 

3,545

 

 

 

4,139

 

 

 

11,362

 

Tax effect of non-GAAP adjustments

 

2,812

 

 

 

(5,737

)

 

 

(12,045

)

 

 

(15,359

)

Total adjustments to GAAP net income (loss)

$

39,628

 

 

$

16,717

 

 

$

84,979

 

 

$

49,767

 

Non-GAAP net income (loss)

$

(24,797

)

 

$

38,848

 

 

$

53,218

 

 

$

102,414

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

GAAP net income (loss) per share – diluted

$

(0.50

)

 

$

0.17

 

 

$

(0.24

)

 

$

0.39

 

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

$

(0.19

)

 

$

0.29

 

 

$

0.40

 

 

$

0.77

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

GAAP Shares used in per share calculation – basic

 

129,299

 

 

 

128,816

 

 

 

129,021

 

 

 

129,864

 

Potentially dilutive equity awards

 

 

 

 

4,209

 

 

 

3,209

 

 

 

3,852

 

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

 

129,299

 

 

 

133,025

 

 

 

132,230

 

 

 

133,716

 

 

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