Extreme Networks Reports Fourth Quarter and Fiscal Year 2023 Financial Results

Marks Second Consecutive Year of Double-Digit Revenue Growth

Significant Operating Leverage and GAAP EPS Growth of 76%

Expect Continued Strong Growth in FY24

MORRISVILLE, N.C.--()--Extreme Networks, Inc. (“Extreme”) (Nasdaq: EXTR) today released financial results for its fiscal year and fourth quarter ended June 30, 2023.

"Extreme delivered a year of exceptional performance, with revenue growth accelerating to 31% in the fourth quarter and 18% overall for the year," said Ed Meyercord, President and Chief Executive Officer. "This marks our second consecutive year of double-digit growth. We're outgrowing our competitors, gaining share, and winning new logos, which helped drive more than 30% growth in the value of deals over $1 million. We're breaking the status quo of networking through product innovation with differentiated solutions like universal hardware, end-to-end cloud management, enhanced AI, and our unique fabric technology, which greatly simplifies network management and bolsters security. Our focus on simplicity, flexibility, and performance continues to fuel our funnel of large opportunities. I remain confident in our growth prospects and am excited about the new innovations and opportunities we have in store for FY24 and beyond," concluded Meyercord.

Kevin Rhodes, Executive Vice President and Chief Financial Officer stated, "the strong topline growth we achieved in Q4 and FY23 resulted in significant operating leverage that drove over 76% growth in GAAP EPS. We doubled our cash generation to $235 million in free cash flow this year, and even after repurchasing another $100 million worth of shares, and paying down $80 million in debt, we improved our year-end balance sheet to achieve a net cash position. Extreme has never been in a more robust financial position, and I am encouraged about our future prospects."

Fiscal Fourth Quarter Results:

  • Revenue $363.9 million, up 31% year-over-year, and up 9% quarter-over-quarter
  • SaaS ARR $129.0 million, up 25% year-over-year, and up 10% quarter-over-quarter
  • GAAP diluted EPS $0.19, compared to $0.04 in the prior year quarter
  • Non-GAAP diluted EPS $0.33, compared to $0.15 in the prior year quarter
  • GAAP gross margin 58.9% compared to 55.4% in the prior year quarter
  • Non-GAAP gross margin 60.2% compared to 57.0% in the prior year quarter
  • GAAP operating margin 10.4 % compared to 3.8 % in the prior year quarter
  • Non-GAAP operating margin 17.4 % compared to 9.6% in the prior year quarter

Fiscal Year 2023 Results:

  • Revenue $1.3 billion, up 18% compared to $1.1 billion in fiscal 2022
  • GAAP EPS $0.58, up from $0.33 in fiscal 2022
  • Non-GAAP EPS $1.09, up from $0.77 in fiscal 2022
  • GAAP operating margin 8.3% compared to 5.8% in fiscal 2022
  • Non-GAAP operating margin 15.2% compared to 12.2% in fiscal 2022

Liquidity:

  • During Q4, we generated net cash flow from operations of $80.7 million and free cash flow of $75.5 million. For the full year, we generated net cash flow from operations of $249.2 million and free cash flow of $235.4 million.
  • During Q4, we repurchased 1.4 million shares of our common stock on the open market at a total cost of $25.1 million with a weighted average price of $17.32 per share. For the full year, we repurchased 5.4 million shares for $100 million with a weighted average price of $18.58 per share.
  • Year ending cash balance was $234.8 million, an increase of $31.8 million from the end of Q3 2023 and $40.3 million at the end of last year.
  • Year ending net cash was $9.8 million, an increase of $43.8 million from net debt of $34.0 million at Q3 2023 and an increase of $123.9 million from net debt of $114.1 million at the end of last year.

Recent Key Highlights:

  • Customers including Norwegian Cruise Line, European energy company E.ON and French university hospital Charité were named as recipients of the 2023 Extreme X-Factor Customer Awards. They were recognized for their innovative and impactful use of Extreme solutions to help drive their organizations forward.
  • During Extreme Connect 2023 in May, the company unveiled a series of groundbreaking networking solutions, including:
    • ExtremeCloud Edge, the industry’s first networking cloud continuum, which offers organizations increased choice and flexibility in running networking applications, including management, analytics, and AI, from any location.
    • The AP3000, the industry's smallest and most energy-efficient Wi-Fi 6E access point (AP)
    • The 7520 and 7720 switches for enterprise core and aggregation use cases and the 8820 switches for large data center networks.
  • Customers like Nevada Department of Transportation and Baylor University are adopting Extreme CoPilot AIOps to offset IT staffing shortages, reduce mean time to resolution of network issues and help IT and network administrators access and leverage network insights to prioritize tickets. As a result, teams can improve service quality, expedite problem resolution, help mitigate cyberthreats and improve time to innovation.
  • Living Tomorrow Innovation Campus in Brussels selected Extreme as its network connectivity partner and will leverage hundreds of AP4000 Wi-Fi 6E access points (APs) to test and demonstrate advanced technologies. The campus will also rely on ExtremeAnalytics and ExtremeCloud IQ to optimize connectivity, enhance guest experiences, improve security and IT productivity, and automate daily network maintenance tasks while detecting anomalies in network activity.
  • The University of Mount Union refreshed its network with end-to-end wired and wireless solutions from Extreme, including Fabric and ExtremeCloud IQ CoPilot for AIOps. The new network provides seamless, AI and Fabric powered automation and optimization across campus, which improves IT productivity and greatly reduces mean time to resolving network anomalies. Extreme improves the performance of in-classroom technology like AR/VR and 4K video streaming.
  • Professional sports teams including the Arizona Diamondbacks, Philadelphia Phillies and Philadelphia Flyers are deploying Wi-Fi 6 and 6E to help create better fan experiences, improve amenities like digital concession signage and mobile tickets, ensure support for future fan experiences like AR/VR and AI applications and streamline venue operations.

Fiscal Q4 2023 and Full Year 2023 Financial Metrics:

(in millions, except percentages and per share information)

 

 

GAAP Results

 

 

 

Three Months Ended

 

 

Year Ended

 

 

 

June 30,
2023

 

 

June 30,
2022

 

 

Change

 

 

June 30,
2023

 

 

June 30,
2022

 

 

Change

 

Product

 

$

261.7

 

 

$

187.1

 

 

$

74.6

 

 

$

932.5

 

 

$

761.7

 

 

$

170.8

 

Service and subscription

 

 

102.2

 

 

 

91.1

 

 

 

11.1

 

 

 

380.0

 

 

 

350.6

 

 

 

29.4

 

Total net revenue

 

$

363.9

 

 

$

278.2

 

 

$

85.7

 

 

$

1,312.5

 

 

$

1,112.3

 

 

$

200.2

 

Gross margin

 

 

58.9

%

 

 

55.4

%

 

 

3.5

%

 

 

57.5

%

 

 

56.6

%

 

 

0.9

%

Operating margin

 

 

10.4

%

 

 

3.8

%

 

 

6.6

%

 

 

8.3

%

 

 

5.8

%

 

 

2.5

%

Net income

 

$

25.4

 

 

$

5.4

 

 

$

20.0

 

 

$

78.1

 

 

$

44.3

 

 

$

33.8

 

Net income per diluted share

 

$

0.19

 

 

$

0.04

 

 

$

0.15

 

 

$

0.58

 

 

$

0.33

 

 

$

0.25

 

 

 

Non-GAAP Results

 

 

 

Three Months Ended

 

 

Year Ended

 

 

 

June 30,
2023

 

 

June 30,
2022

 

 

Change

 

 

June 30,
2023

 

 

June 30,
2022

 

 

Change

 

Product

 

$

261.7

 

 

$

187.1

 

 

$

74.6

 

 

$

932.5

 

 

$

761.7

 

 

$

170.8

 

Service and subscription

 

 

102.2

 

 

 

91.1

 

 

 

11.1

 

 

 

380.0

 

 

 

350.6

 

 

 

29.4

 

Total net revenue

 

$

363.9

 

 

$

278.2

 

 

$

85.7

 

 

$

1,312.5

 

 

$

1,112.3

 

 

$

200.2

 

Gross margin

 

 

60.2

%

 

 

57.0

%

 

 

3.2

%

 

 

58.9

%

 

 

58.4

%

 

 

0.5

%

Operating margin

 

 

17.4

%

 

 

9.6

%

 

 

7.8

%

 

 

15.2

%

 

 

12.2

%

 

 

3.0

%

Net income

 

$

43.9

 

 

$

19.7

 

 

$

24.2

 

 

$

146.3

 

 

$

103.5

 

 

$

42.9

 

Net income per diluted share

 

$

0.33

 

 

$

0.15

 

 

$

0.18

 

 

$

1.09

 

 

$

0.77

 

 

$

0.32

 

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 millions):

Free Cash Flow

Three Months Ended

 

 

Year Ended

 

 

June 30,
2023

 

 

June 30,
2022

 

 

June 30,
2023

 

 

June 30,
2022

 

Cash flow provided by operations

$

80.7

 

 

$

64.1

 

 

$

249.2

 

 

$

128.2

 

Less: Property and equipment capital expenditures

 

(5.2

)

 

 

(4.3

)

 

 

(13.8

)

 

 

(15.5

)

Total free cash flow

$

75.5

 

 

$

59.8

 

 

$

235.4

 

 

$

112.7

 

SaaS ARR: Extreme uses SaaS annual recurring revenue (“SaaS ARR”) to identify the annual recurring revenue of ExtremeCloud™ IQ (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 accounted 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 minus gross debt, as shown in the table below (in millions):

Cash

 

 

Gross debt

 

 

Net cash (debt)

 

$

234.8

 

 

$

225.0

 

 

$

9.8

 

 

Business Outlook:

Extreme’s business outlook is based on current expectations. The following statements are forward-looking, and actual results could differ materially based on various factors, including market conditions and the factors set forth under “Forward-Looking Statements” below.

For its first quarter of fiscal 2024, ending September 30, 2023, the Company is targeting:

(in millions, except percentages and per share information)

Low-End

 

 

High-End

 

FQ1'24 Guidance – GAAP

 

 

 

 

 

Total net revenue

$

342.0

 

 

$

352.0

 

Gross margin

 

58.6

%

 

 

60.6

%

Operating margin

 

7.5

%

 

 

9.8

%

Net income per diluted share

$

0.12

 

 

$

0.18

 

Shares outstanding used in calculating GAAP EPS

 

133.0

 

 

 

133.0

 

FQ1’24 Guidance – Non-GAAP

 

 

 

 

 

Total net revenue

$

342.0

 

 

$

352.0

 

Gross margin

 

59.5

%

 

 

61.5

%

Operating margin

 

15.3

%

 

 

17.6

%

Net income per diluted share

$

0.28

 

 

$

0.33

 

Shares outstanding used in calculating non-GAAP EPS

 

133.0

 

 

 

133.0

 

The following table shows the GAAP to non-GAAP reconciliation for Q1 FY’24 guidance:

 

Gross Margin
Rate

 

Operating
Margin Rate

 

Earnings per
Share

GAAP

58.6% - 60.6%

 

7.5% - 9.8%

 

$0.12 - $0.18

Estimated adjustments for:

 

 

 

 

 

Share-based compensation

0.5%

 

5.7%

 

0.15

Amortization of product intangibles

0.3%

 

0.3%

 

0.01

Amortization of non-product intangibles

0.1%

 

0.2%

 

0.01

Restructuring

 

1.0%

 

0.03

Litigation charges

 

0.3%

 

0.01

System transition cost

 

0.3%

 

0.01

Tax adjustment

 

 

(0.06)

Non-GAAP

59.5% - 61.5%

 

15.3% - 17.6%

 

$0.28 - $0.33

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 fourth quarter results of fiscal 2023 as well as the business outlook for the first quarter of fiscal 2024 ending September 30, 2023, 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 by phone, please go to this link (Extreme Networks Q4'23 Earnings Registration Link) and you will be provided with dial in details. 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 margin, non-GAAP operating margin, non-GAAP operating income, non-GAAP net income, non-GAAP net income 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, debt restructuring 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 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; 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 global business and economic trends 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, 2022, Quarterly Reports on Form 10-Q for the quarters ended September 30, 2022, December 31, 2022, and, March 31, 2023, and other documents of the Company on file with the Securities and Exchange Commission (available at www.sec.gov). As a result of these risks and others, actual results could vary significantly from those anticipated in this press release, and the Company’s financial condition and results of operations could be materially adversely affected. Except as required under the U.S. federal securities laws and the rules and regulations of the U.S. Securities and Exchange Commission, Extreme disclaims any obligation to update any forward-looking statements after the date of this release, whether as a result of new information, future events, developments, changes in assumptions or otherwise.

 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

June 30,
2023

 

 

June 30,
2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

234,826

 

 

$

194,522

 

Accounts receivable, net

 

 

182,045

 

 

 

184,097

 

Inventories

 

 

89,024

 

 

 

49,231

 

Prepaid expenses and other current assets

 

 

70,263

 

 

 

61,239

 

Total current assets

 

 

576,158

 

 

 

489,089

 

Property and equipment, net

 

 

46,448

 

 

 

49,578

 

Operating lease right-of-use assets, net

 

 

34,739

 

 

 

36,454

 

Intangible assets, net

 

 

16,063

 

 

 

32,515

 

Goodwill

 

 

394,755

 

 

 

400,144

 

Other assets

 

 

73,544

 

 

 

60,730

 

Total assets

 

$

1,141,707

 

 

$

1,068,510

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt, net of unamortized debt issuance costs of $674 and $2,276, respectively

 

$

34,326

 

 

$

33,349

 

Accounts payable

 

 

99,724

 

 

 

84,338

 

Accrued compensation and benefits

 

 

71,367

 

 

 

53,710

 

Accrued warranty

 

 

12,322

 

 

 

10,852

 

Current portion, operating lease liabilities

 

 

10,847

 

 

 

13,956

 

Current portion, deferred revenue

 

 

282,475

 

 

 

238,262

 

Other accrued liabilities

 

 

64,440

 

 

 

65,714

 

Total current liabilities

 

 

575,501

 

 

 

500,181

 

Deferred revenue, less current portion

 

 

219,024

 

 

 

163,357

 

Long-term debt, less current portion, net of unamortized debt issuance costs of $2,409 and $2,430, respectively

 

 

187,591

 

 

 

270,570

 

Operating lease liabilities, less current portion

 

 

31,845

 

 

 

33,256

 

Deferred income taxes

 

 

7,747

 

 

 

7,717

 

Other long-term liabilities

 

 

3,247

 

 

 

3,086

 

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; 143,629 and 139,742 shares issued, respectively; 127,775 and 129,263 shares outstanding, respectively

 

 

144

 

 

 

140

 

Additional paid-in-capital

 

 

1,173,744

 

 

 

1,115,416

 

Accumulated other comprehensive loss

 

 

(13,192

)

 

 

(3,055

)

Accumulated deficit

 

 

(855,998

)

 

 

(934,072

)

Treasury stock at cost, 15,854 and 10,479 shares, respectively

 

 

(187,946

)

 

 

(88,086

)

Total stockholders’ equity

 

 

116,752

 

 

 

90,343

 

Total liabilities and stockholders’ equity

 

$

1,141,707

 

 

$

1,068,510

 

 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Year Ended

 

 

 

June 30,
2023

 

 

June 30,
2022

 

 

June 30,
2023

 

 

June 30,
2022

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

261,675

 

 

$

187,085

 

 

$

932,454

 

 

$

761,721

 

Service and subscription

 

 

102,235

 

 

 

91,111

 

 

 

380,000

 

 

 

350,600

 

Total net revenues

 

 

363,910

 

 

 

278,196

 

 

 

1,312,454

 

 

 

1,112,321

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

114,030

 

 

 

96,103

 

 

 

426,295

 

 

 

360,562

 

Service and subscription

 

 

35,461

 

 

 

27,902

 

 

 

131,439

 

 

 

121,821

 

Total cost of revenues

 

 

149,491

 

 

 

124,005

 

 

 

557,734

 

 

 

482,383

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

147,645

 

 

 

90,982

 

 

 

506,159

 

 

 

401,159

 

Service and subscription

 

 

66,774

 

 

 

63,209

 

 

 

248,561

 

 

 

228,779

 

Total gross profit

 

 

214,419

 

 

 

154,191

 

 

 

754,720

 

 

 

629,938

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

55,826

 

 

 

45,130

 

 

 

214,270

 

 

 

190,591

 

Sales and marketing

 

 

94,024

 

 

 

80,538

 

 

 

336,906

 

 

 

294,470

 

General and administrative

 

 

25,619

 

 

 

16,103

 

 

 

89,934

 

 

 

68,697

 

Acquisition and integration costs

 

 

 

 

 

553

 

 

 

390

 

 

 

7,009

 

Restructuring and related charges

 

 

540

 

 

 

770

 

 

 

2,860

 

 

 

1,748

 

Amortization of intangibles

 

 

510

 

 

 

639

 

 

 

2,047

 

 

 

3,235

 

Total operating expenses

 

 

176,519

 

 

 

143,733

 

 

 

646,407

 

 

 

565,750

 

Operating income

 

 

37,900

 

 

 

10,458

 

 

 

108,313

 

 

 

64,188

 

Interest income

 

 

1,100

 

 

 

110

 

 

 

3,155

 

 

 

412

 

Interest expense

 

 

(5,729

)

 

 

(3,039

)

 

 

(17,385

)

 

 

(12,789

)

Other income (expense), net

 

 

(119

)

 

 

86

 

 

 

23

 

 

 

383

 

Income before income taxes

 

 

33,152

 

 

 

7,615

 

 

 

94,106

 

 

 

52,194

 

Provision for income taxes

 

 

7,725

 

 

 

2,205

 

 

 

16,032

 

 

 

7,923

 

Net income

 

$

25,427

 

 

$

5,410

 

 

$

78,074

 

 

$

44,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share – basic

 

$

0.20

 

 

$

0.04

 

 

$

0.60

 

 

$

0.34

 

Net income per share – diluted

 

$

0.19

 

 

$

0.04

 

 

$

0.58

 

 

$

0.33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in per share calculation – basic

 

 

128,294

 

 

 

129,788

 

 

 

129,473

 

 

 

129,437

 

Shares used in per share calculation – diluted

 

 

132,873

 

 

 

132,304

 

 

 

133,649

 

 

 

133,494

 

 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Year Ended

 

 

 

June 30,
2023

 

 

June 30,
2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

78,074

 

 

$

44,271

 

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

 

 

 

 

 

 

Depreciation

 

 

19,888

 

 

 

20,215

 

Amortization of intangible assets

 

 

14,988

 

 

 

19,946

 

Reduction in carrying amount of right-of-use asset

 

 

12,248

 

 

 

14,929

 

Provision for doubtful accounts

 

 

459

 

 

 

29

 

Share-based compensation

 

 

63,472

 

 

 

43,362

 

Deferred income taxes

 

 

407

 

 

 

682

 

Non-cash interest expense

 

 

1,145

 

 

 

4,443

 

Other

 

 

(8,056

)

 

 

423

 

Changes in operating assets and liabilities, net of acquisition:

 

 

 

 

 

 

Accounts receivable

 

 

1,593

 

 

 

(26,231

)

Inventories

 

 

(41,827

)

 

 

(16,722

)

Prepaid expenses and other assets

 

 

(1,368

)

 

 

(4,469

)

Accounts payable

 

 

14,733

 

 

 

23,810

 

Accrued compensation and benefits

 

 

17,137

 

 

 

(20,709

)

Operating lease liabilities

 

 

(15,219

)

 

 

(18,949

)

Deferred revenue

 

 

90,102

 

 

 

44,635

 

Other current and long-term liabilities

 

 

1,436

 

 

 

(1,488

)

Net cash provided by operating activities

 

 

249,212

 

 

 

128,177

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(13,800

)

 

 

(15,433

)

Business acquisition, net of cash acquired

 

 

 

 

 

(69,517

)

Net cash used in investing activities

 

 

(13,800

)

 

 

(84,950

)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings under Revolving Facility

 

 

25,000

 

 

 

 

Payments on debt obligations

 

 

(108,625

)

 

 

(38,125

)

Loan fees on borrowings

 

 

(3,158

)

 

 

 

Repurchase of common stock

 

 

(99,860

)

 

 

(44,973

)

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

 

 

(5,140

)

 

 

(6,541

)

Payment of contingent consideration obligations

 

 

 

 

 

(1,024

)

Deferred payments on an acquisition

 

 

(3,000

)

 

 

(4,000

)

Net cash used in financing activities

 

 

(194,783

)

 

 

(94,663

)

 

 

 

 

 

 

 

Foreign currency effect on cash

 

 

(325

)

 

 

(936

)

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

40,304

 

 

 

(52,372

)

 

 

 

 

 

 

 

Cash at beginning of period

 

 

194,522

 

 

 

246,894

 

Cash at end of period

 

$

234,826

 

 

$

194,522

 

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 margin, non-GAAP operating income, non-GAAP net income, non-GAAP net income 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, debt 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, 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.

Debt refinancing charges. Debt refinancing charges consist of the write-off of certain unamortized debt issuance costs included on interest expense, as well as other debt refinancing charges that were not capitalizable and are included in other income (expense), that occurred in conjunction with the amendment of our credit facility in June 2023.

Tax effect of non-GAAP adjustments. We calculate our non-GAAP provision for income taxes in accordance with the SEC guidance on non-GAAP Financial Measures Compliance and Disclosure Interpretation. We have assumed our U.S. federal and state net operating losses would have been fully consumed by the historical non-GAAP financial adjustments, eliminating the need for a full valuation allowance against our U.S. deferred tax assets which, consequently, enables our use of research and development tax credits. The non-GAAP tax provision consists of current and deferred income tax expense commensurate with the non-GAAP measure of profitability using our blended U.S. statutory tax rate of 24.6%.

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

Year Ended

 

June 30,
2023

 

June 30,
2022

 

June 30,
2023

 

June 30,
2022

Revenues – GAAP

$

363,910

 

$

278,196

 

$

1,312,454

 

$

1,112,321

Non-GAAP Gross Margin

Three Months Ended

Year Ended

 

 

June 30,
2023

 

 

June 30,
2022

 

 

June 30,
2023

 

 

June 30,
2022

 

Gross profit – GAAP

$

214,419

 

 

$

154,191

 

 

$

754,720

 

 

$

629,938

 

Gross margin – GAAP percentage

 

58.9

%

 

 

55.4

%

 

 

57.5

%

 

 

56.6

%

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense, Product

 

491

 

 

 

281

 

 

 

1,856

 

 

 

1,186

 

Share-based compensation expense, Services and subscription

 

945

 

 

 

365

 

 

 

3,513

 

 

 

1,421

 

Amortization of intangibles, Product

 

2,230

 

 

 

2,804

 

 

 

9,611

 

 

 

13,381

 

Amortization of intangibles, Service and subscription

 

815

 

 

 

815

 

 

 

3,258

 

 

 

3,259

 

Total adjustments to GAAP gross profit

$

4,481

 

 

$

4,265

 

 

$

18,238

 

 

$

19,247

 

Gross profit – non-GAAP

$

218,900

 

 

$

158,456

 

 

$

772,958

 

 

$

649,185

 

Gross margin – non-GAAP percentage

 

60.2

%

 

 

57.0

%

 

 

58.9

%

 

 

58.4

%

Non-GAAP Operating Income

Three Months Ended

Year Ended

 

 

June 30,
2023

 

 

June 30,
2022

 

 

June 30,
2023

 

 

June 30,
2022

 

GAAP operating income

$

37,900

 

 

$

10,458

 

 

$

108,313

 

 

$

64,188

 

GAAP operating income percentage

 

10.4

%

 

 

3.8

%

 

 

8.3

%

 

 

5.8

%

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense, cost of revenues

 

1,436

 

 

 

646

 

 

 

5,369

 

 

 

2,607

 

Share-based compensation expense, R&D

 

3,889

 

 

 

2,427

 

 

 

14,824

 

 

 

9,995

 

Share-based compensation expense, S&M

 

5,924

 

 

 

3,733

 

 

 

22,250

 

 

 

15,000

 

Share-based compensation expense, G&A

 

5,662

 

 

 

3,925

 

 

 

21,029

 

 

 

15,760

 

Acquisition and integration costs

 

 

 

 

553

 

 

 

390

 

 

 

7,009

 

Restructuring charges

 

540

 

 

 

770

 

 

 

2,860

 

 

 

1,748

 

Litigation charges

 

4,022

 

 

 

 

 

 

8,026

 

 

 

 

System transition costs

 

467

 

 

 

 

 

 

957

 

 

 

 

Amortization of intangibles

 

3,555

 

 

 

4,258

 

 

 

14,916

 

 

 

19,875

 

Total adjustments to GAAP operating income

 

25,495

 

 

 

16,312

 

 

 

90,621

 

 

 

71,994

 

Non-GAAP operating income

$

63,395

 

 

$

26,770

 

 

$

198,934

 

 

$

136,182

 

Non-GAAP operating income percentage

 

17.4

%

 

 

9.6

%

 

 

15.2

%

 

 

12.2

%

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Income

Three Months Ended

Year Ended

 

 

June 30,
2023

 

 

June 30,
2022

 

 

June 30,
2023

 

 

June 30,
2022

 

GAAP net income

$

25,427

 

 

$

5,410

 

 

$

78,074

 

 

$

44,271

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

16,911

 

 

 

10,731

 

 

 

63,472

 

 

 

43,362

 

Acquisition and integration costs

 

 

 

 

553

 

 

 

390

 

 

 

7,009

 

Restructuring charge, net of reversal

 

540

 

 

 

770

 

 

 

2,860

 

 

 

1,748

 

Litigation charges

 

4,022

 

 

 

 

 

 

8,026

 

 

 

 

System transition costs

 

467

 

 

 

 

 

 

957

 

 

 

 

Amortization of intangibles

 

3,555

 

 

 

4,258

 

 

 

14,916

 

 

 

19,875

 

Debt refinancing charges, Interest expense

 

1,346

 

 

 

 

 

 

1,346

 

 

 

 

Debt refinancing charges, Other income (expense)

 

197

 

 

 

 

 

 

197

 

 

 

 

Tax effect of non-GAAP adjustments

 

(8,574

)

 

 

(2,074

)

 

 

(23,933

)

 

 

(12,814

)

Total adjustments to GAAP net income

$

18,464

 

 

$

14,238

 

 

$

68,231

 

 

$

59,180

 

Non-GAAP net income

$

43,891

 

 

$

19,648

 

 

$

146,305

 

 

$

103,451

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

GAAP net income per share – diluted

$

0.19

 

 

$

0.04

 

 

$

0.58

 

 

$

0.33

 

Non-GAAP net income per share – diluted

$

0.33

 

 

$

0.15

 

 

$

1.09

 

 

$

0.77

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in net income per share – diluted:

 

 

 

 

 

 

 

 

 

 

 

GAAP Shares used in per share calculation – basic

 

128,294

 

 

 

129,788

 

 

 

129,473

 

 

 

129,437

 

Potentially dilutive equity awards

 

4,579

 

 

 

2,516

 

 

 

4,176

 

 

 

4,057

 

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

 

132,873

 

 

 

132,304

 

 

 

133,649

 

 

 

133,494

 

 

Contacts

For more information, contact:

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

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

Release Summary

Extreme Networks today released financial results for its fiscal year and fourth quarter ended June 30, 2023.

Contacts

For more information, contact:

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

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