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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240501643852/en/
Investor Relations Stan Kovler 919/595-4196
Investor_relations@extremenetworks.com
Media Contact Amy Aylward 603/952-5138
pr@extremenetworks.com
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