Extreme Networks Reports Second Fiscal Quarter 2013 Financial Results

    Extreme Networks Reports Second Fiscal Quarter 2013 Financial Results

PR Newswire

SANTA CLARA, Calif., Jan. 30, 2013

SANTA CLARA, Calif., Jan. 30, 2013 /PRNewswire/ -- Extreme Networks, Inc.
(Nasdaq: EXTR) today announced revenue of $75.6 million for its second quarter
of fiscal 2013 ending December 31, 2012. This represents a 9.0% decrease
compared to revenue of $82.8 million reported for the second quarter of fiscal
2012 and a 0.7% decrease compared to the first quarter of fiscal 2013. GAAP
net loss for the second quarter was $4.2 million, or $0.04 per diluted share,
a decrease year-over-year compared to GAAP net income of $4.1 million, or
$0.04 per diluted share, for the second quarter of fiscal 2012. On a non-GAAP
basis, net income for the second quarter of fiscal 2013 was $2.8 million, or
$0.03 per diluted share, compared to non-GAAP net income for the second
quarter of fiscal 2012 of $5.8 million, or $0.06 per diluted share.

"Q2 results were in-line with our revised targets and we are encouraged by the
order growth in our 10G and 40G products during the quarter," stated Oscar
Rodriguez, President and CEO of Extreme Networks. "We continued to gain a
strategic footprint in the data center space. Our flagship Open Fabric
product, the BlackDiamond® X8 switch, gained traction across geographies and
market verticals and had its best quarter to date and the pipeline of
opportunities continues to grow, even in a very weak global economy."

Fiscal Q2 2013 Financial Metrics:

                            Second Quarter
                            (in millions, except per share amounts
                            and percentages)
                            (unaudited)
                            2013         2012    Change
Net Revenue
Product                     $  60.3      $ 68.1  $ (7.8)   (11.5)%
Service                     $  15.3      $ 14.7  $ 0.6     4.1%
Total Net Revenue           $  75.6      $ 82.8  $ (7.2)   (8.7)%
GAAP
Gross Margin                53.9%        55.9%   (2.0)%
Operating Margin/Loss       (5.0)%       4.9%    (9.9)%
Net Income                  $  (4.2)     $ 4.1   $ (8.3)
Earnings per diluted share  $  (0.04)    $ 0.04  $ (0.08)
Non-GAAP
Gross Margin                54.2%        56.1%   (1.9)%
Operating Margin            3.5%         7.0%    (3.5)%
Net Income                  $  2.8       $ 5.8   $ (3.0)
Earnings per diluted share  $  0.03      $ 0.06  $ (0.03)
Diluted Shares              94.5         94.1    0.4

  oGAAP operating margin includes $1.6 million of stock based compensation, a
    favorable litigation settlement of $0.4 million and $5.2 million of
    restructuring charges impacting approximately 13% of the employee base,
    with a plan to transition certain functions to a lower cost region and the
    reduction of certain facility related costs. These items are excluded
    from our non-GAAP operating margin.
  oCash and investments ended the quarter at $196.2 million, as compared to
    $202.6 million at Q1 of fiscal 2013. Cash provided by operations was $1.0
    million. During the quarter, we repurchased 1.9 million shares for $6.7
    million as a portion of the previously announced three year $75 million
    buy-back program.
  oAccounts receivable balance ending Q2 was $42.6 million, a (net) increase
    of $7.9 million from Q1 of fiscal 2013, with days sales outstanding (DSO)
    of 52, an increase of 11 days from Q1 of fiscal 2013. This increase was
    primarily due to receipt of customer orders and related shipments later in
    the quarter than normal.
  oInventory ending Q2 was $17.9 million, a (net) decrease of $4.9 million
    from Q1 of fiscal 2013 and represents 55 days of inventory (DOI),
    sequentially down 12 days from Q1 of fiscal 2013.

Recent Business
Highlights:

  oCRN Magazine honored Extreme Networks with its 2012 Tech Innovator Award
    for the Industry Leading BlackDiamond® X8 Data Center Fabric Switch.
  oExtreme Networks, with its open and modular ExtremeXOS® operating system,
    continues delivering on its SDN roadmap with support of two SDN
    applications: Big Switch Networks' Big Tap®, providing traffic monitoring
    and dynamic network visibility with flow filtering, and for virtualized
    data center networks, Big Switch Networks BVS (Big Virtual Switch).
  oThe Company announced a restructuring plan on January 3, 2013 to
    streamline its operations. A significant portion of the plan has been
    implemented. Once the plan is fully implemented the restructuring plan is
    expected to reduce approximately $7.0 million in quarterly costs. Along
    with strengthening our long term competitive position, the actions taken
    will facilitate Extreme Networks achieving its target of a quarterly 10%
    non-GAAP operating income margin by the end of fiscal 2013.

Business Outlook:

For its third quarter of fiscal 2013 ending March 31, 2013, the Company is
targeting revenue in a range of $70 million to $75 million with GAAP and
non-GAAP gross margin targeted to be between 54% and 55%. GAAP operating
expenses are targeted to decrease by $8 million to $9 million and by $4
million to $5 million on a non-GAAP basis. Interest Income and Other Expense
is targeted to be approximately $0.2 million with Tax Expense targeted to be
approximately $0.6 million. GAAP net income is targeted at $3.0 million to
$5.0 million, or $0.03 to $0.06 per diluted share. Non-GAAP net income is
targeted in a range of $4.0 million to $7.0 million, or $0.04 to $0.08 per
diluted share. The GAAP and non-GAAP net income targets are based on an
estimated 93.5 million diluted weighted average shares. Targeted non-GAAP
earnings exclude expenses related to stock-based compensation expense of
approximately $1.5 million and restructuring charges of approximately $0.6
million.

The schedules attached are an integral part of the press release.

Conference Call:

Extreme Networks will host a conference call at 5:00 p.m. Eastern (2:00 p.m.
Pacific) today to review the highlights of the second fiscal quarter 2013
business outlook, 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.comand a replay of the call will be available
on the website through March 15th, 2013. Theconference callmay also be
heard by dialing1-877-303-9826 and International callers' dial
1-224-357-2194, Conference ID: 93884800. Supplemental financial information
to be discussed during the conference call will be posted in the Investor
Relations section of the Company's website www.extremenetworks.comincluding
the non-GAAP reconciliation attached to this press release.

About Extreme Networks:

Extreme Networks is a technology leader in high-performance Ethernet switching
for cloud, data center and mobile networks. Based in Santa Clara, CA, Extreme
Networks has more than 6,000 customers in over 50 countries. Extreme Networks
is a trademark or registered trademark of Extreme Networks, Inc. in the United
States and/or other countries.

For additional product and Company information, please refer to
www.extremenetworks.com.

Non-GAAP Financial Measures:
Extreme Networks provides all financial information required in accordance
with generally accepted accounting principles (GAAP). To supplement its
consolidated financial statements presented in accordance with GAAP, the
Company is also providing with this press release non-GAAP net income/(loss)
and non-GAAP operating income/(loss). In preparing non-GAAP information, the
Company has excluded, where applicable, the impact of restructuring charges,
share-based compensation, litigation settlements, gain on the sale of
facilities and the currency loss from closing subsidiaries. The Company
believes that excluding these items provides both management and investors
with additional insight into its current operations, the trends affecting the
Company and the Company's marketplace performance. In particular, management
finds it useful to exclude these items in order to more readily correlate the
Company's operating activities with the Company's ability to generate cash
from operations. Accordingly, management uses these non-GAAP measures, along
with the comparable GAAP information, in evaluating the Company's historical
performance and in planning its future business activities. Please note that
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 financial information presented in accordance with GAAP. The
Company has provided a non-GAAP reconciliation of the Condensed Consolidated
Statement of Operations for the periods presented in this release, which are
adjusted to exclude restructuring charges, share-based compensation expense
and litigation settlements for these periods. 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
Networks uses both GAAP and non-GAAP measures to evaluate and manage its
operations.

Forward Looking Statements:

Actual results, including with respect to the Company's financial targets and
general business prospects, could differ materially due to a number of
factors, including the risk that the Company may not obtain sufficient orders
to achieve targeted revenues for the Company's products and services given
both increasing price competition in key network switching equipment markets
and the need to align the Company's cost structure to meet the Company's
financial goals; the Company's effectiveness in controlling expenses,
including the risk that the Company's restructuring efforts may not achieve as
significant a reduction in operating expenses as anticipated, the risk that it
or its distributors and other channel partners are not able to develop and
expand customer bases and accurately anticipate demand from end customers,
which can result in increased inventory and reduced orders as it experiences
wide fluctuations in supply and demand; the risk that its results will suffer
if it is unable to balance fluctuations in customer demand and capacity;
risks associated with the ramp-up of production of its new products and its
entry into new business channels different from those in which it has
historically operated; the risk that it may experience production delays that
preclude it from shipping sufficient quantities to meet customer orders or
that result in higher production costs and lower margins; ongoing uncertainty
in global economic conditions, infrastructure development or customer demand
that could negatively affect product demand, collectability of receivables and
other related matters as consumers and businesses may defer purchases or
payments, or default on payments; its ability to complete development and
commercialization of products under development, such as its pipeline of new
network switches and related software; its ability to lower costs; risks
resulting from the concentration of business among few customers, including
the risk that customers may reduce or cancel orders or fail to honor purchase
commitments; the rapid development of new technology and competing products
that may impair demand or render its products obsolete; the potential lack of
customer acceptance for new products; and risks associated with ongoing
litigation; 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 is included in its filings with the Securities
and Exchange Commission, including, without limitation, under the captions:
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Risk Factors," which are on file with the Securities and
Exchange Commission. Except as required under the U.S. federal securities laws
and the rules and regulations of the SEC, Extreme Networks 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 share and per share amounts)

(Unaudited)
                                                   December 31,  June 30, 2012
                                                   2012
ASSETS
Current assets:
Cash and cash equivalents                          $   89,766    $   54,596
Short-term investments                             35,204        23,358
Accounts receivable, net of allowances of $1,689   42,583        41,166
at December 31, 2012 and $1,646 at June 30, 2012
Inventories                                        17,866        26,609
Deferred income taxes                              281           644
Prepaid expenses and other current assets          5,407         5,655
Assets held for sale                               —             17,081
Total current assets                               191,107       169,109
Property and equipment, net                        9,510         25,180
Marketable securities                              71,208        75,561
Intangible assets, net                             4,639         5,106
Other assets, net                                  8,939         9,634
Total assets                                       $   285,403   $   284,590
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                                   $   11,341    $   19,437
Accrued compensation and benefits                  11,168        13,409
Restructuring liabilities                          5,032         463
Accrued warranty                                   2,971         2,871
Deferred revenue, net                              29,441        31,769
Deferred distributors revenue, net of cost of      15,404        15,319
sales to distributors
Other accrued liabilities                          12,768        13,480
Total current liabilities                          88,125        96,748
Deferred revenue, less current portion             8,133         7,559
Other long-term liabilities                        837           643
Commitments and contingencies
Stockholders' equity                               188,308       179,640
Total liabilities and stockholders' equity         $   285,403   $   284,590







EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)
                           Three Months Ended        Six Months Ended
                           December 31,  January 1,  December 31,  January 1,
                           2012          2012        2012          2012
Net revenues:
Product                    $   60,259    $  68,094   $   121,378   $  131,307
Service                    15,292        14,718      30,300        30,399
Total net revenues         75,551        82,812      151,678       161,706
Cost of revenues:
Product                    29,377        30,821      59,853        60,299
Service                    5,435         5,723       11,111        11,603
Total cost of revenues     34,812        36,544      70,964        71,902
Gross profit:
Product                    30,882        37,273      61,525        71,008
Service                    9,857         8,995       19,189        18,796
Total gross profit         40,739        46,268      80,714        89,804
Operating expenses:
Research and development   11,007        11,082      21,573        23,490
Sales and marketing        22,093        22,734      44,120        44,855
General and administrative 6,644         7,954       12,003        14,224
Restructuring charge, net  5,176         437         5,167         1,392
of reversals
Litigation Settlement      (421)         —           (421)         —
Gain on sale of facilities —             —           (11,539)      —
Total operating expenses   44,499        42,207      70,903        83,961
Operating (loss) income    (3,760)       4,061       9,811         5,843
Interest income            261           342         531           635
Interest expense           (1)           (38)        (1)           (75)
Other income (expense),    (300)         (39)        (649)         17
net
(Loss) income before       (3,800)       4,326       9,692         6,420
income taxes
Provision for income taxes 406           219         983           731
Net (loss) income          $   (4,206)   $  4,107    $   8,709     $  5,689
Basic and diluted net
income per share:
Net (loss) income per      $   (0.04)    $  0.04     $   0.09      $  0.06
share - basic
Net (loss) income per      $   (0.04)    $  0.04     $   0.09      $  0.06
share - diluted
Shares used in per share   94,501        93,247      94,619        92,978
calculation - basic
Shares used in per share   94,501        94,118      95,514        94,056
calculation - diluted







EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)
                                                     Six Months Ended
                                                     December 31,  January 1,
                                                     2012          2012
Net cash provided by operating activities            $   8,077     $  3,954
Cash flows from investing activities:
Capital expenditures                                 (3,026)       (2,011)
Purchases of investments                             (25,886)      (34,015)
Proceeds from maturities of investments and          9,322         13,889
marketable securities
Proceeds from sales of investments and marketable    8,447         18,192
securities
Purchase of intangible assets                        (335)         —
Proceeds from sales of facilities                    42,659        —
Net cash provided by (used in) investing activities  31,181        (3,945)
Cash flows from financing activities:
Proceeds from issuance of common stock               1,614         698
Repurchases of common stock                          (6,171)       —
Net cash (used in) provided by financing activities  (4,557)       698
Foreign currency effect on cash                      469           (1,260)
Net increase (decrease) in cash and cash equivalents 35,170        (553)
Cash and cash equivalents at beginning of period     54,596        49,972
Cash and cash equivalents at end of period           $   89,766    $  49,419





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

To supplement the Company's consolidated financial statements presented in
accordance with generally accepted accounting principles, or GAAP, Extreme
Networks uses non-GAAP measure of certain components of financial
performance. These non-GAAP measures include non-GAAP net income, non-GAAP
earnings per diluted share, non-GAAP gross margin, non-GAAP operating expenses
and 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. In this press release, Extreme Networks also presents its
target for non-GAAP expenses, which is expenses less stock based compensation
expense, litigation settlements, restructuring expenses, gains related to the
sale of the Santa Clara campus and currency gains or losses related to closing
of certain foreign subsidiaries.

Non-GAAP measures presented in this press release are not in accordance with
or an 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 Networks' results of operations as
determined in accordance with GAAP. These non-GAAP measures should only be
used to evaluate Extreme Networks' results of operations in conjunction with
the corresponding GAAP measures.

Extreme Networks believes that 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 shareholder value. In addition,
because Extreme Networks has historically reported certain non-GAAP results to
investors, the Company believes that 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
Network's management uses financial statements that do not include stock-based
compensation expense, litigation settlement gains or losses, restructuring
expenses , gains related to the sale of the Santa Clara campus and. currency
gains or losses related to closing of certain foreign subsidiaries. Extreme
Networks' management also uses non-GAAP measures, in addition to the
corresponding GAAP measures, in reviewing the Company's financial results.

As described above, Extreme Networks excludes the following items from one or
more of its non-GAAP measures when applicable.

Stock based compensation expense. This expense consists of expenses for stock
options, restricted stock and employee stock purchases through its ESPP.
Extreme Networks excludes stock 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 operating
results. Extreme Networks expects to incur stock-based compensation expenses
in future periods.

Restructuring expenses. Restructuring expenses primarily consist of cash
severance and termination benefits. Extreme Networks excludes restructuring
expenses since they result from events that often occur outside of the
ordinary course of continuing operations. Extreme Networks expects to incur
restructuring expenses in future periods

Gains related to the sale of facilities. The one-time net gain related to the
sale of the Santa Clara campus consist of the gross proceeds of the sale less
the expenses directly related to the sale such as commissions, closing costs
and legal fees. Extreme Networks excludes this gain because it is a one-time
event and does not believe that the gain is reflective of ongoing operations.

Currency gains or losses related to closing of certain foreign subsidiaries.
This is related to the closing of our Japanese subsidiary. This has
accumulated over time and has historically been included in Other
Comprehensive Income. Extreme Networks excludes these gains and losses as it
is a one-time event and does not believe it is reflective of ongoing
operations.

In addition to the non-GAAP measures discussed above, Extreme Networks also
uses free cash flow as a measure of operating performance. Free cash flow
represents operating cash flows less net purchase of property and equipment.
Extreme Networks considers free cash flows to be a liquidity measure that
provides useful information to management and investors about the amount of
cash generated by the business after the purchases of property and equipment,
which can then be used to, among other things, invest in Extreme Networks
business, make strategic acquisitions, strengthen the balance sheet and
repurchase stock. A limitation of the utility of free cash slows as a measure
of financial performance is that it does not represent the total increases or
decrease in the Company's cash balance for the period.





EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

GAAP TO NON-GAAP RECONCILIATION

(In thousands, except per share amounts)

(Unaudited)
Non-GAAP Gross Margin       Three Months Ended        Six Months Ended
                            December 31,  January 1,  December 31,  January 1,
                            2012          2012        2012          2012
Gross profit - GAAP Basis   $   40,739    $  46,268   $  80,714     $  89,804
Gross margin - GAAP Basis   53.9%         55.9%       53.2%         55.5%
percentage
Adjustments:
Stock based compensation    $   206       $  165      $  538        $  435
expense
Gross profit - Non-GAAP     $   40,945    $  46,433   $  81,252     $  90,239
Basis
Gross margin - Non-GAAP     54.2%         56.1%       53.6%         55.8%
Basis percentage
Non-GAAP Operating Income   Three Months Ended        Six Months Ended
                            December 31,  January 1,  December 31,  January 1,
                            2012         2012        2012          2012
GAAP operating (loss)       $   (3,760)   $  4,061    $  9,811      $  5,843
income
GAAP operating income       (5.0)%        4.9%        6.5%          3.6%
percentage
Adjustments:
Stock based compensation    $   1,616     $  1,281    $  3,784      $  3,176
expense
Restructuring charge, net   $   5,176     $  437      $  5,167      $  1,392
of reversals
Litigation Settlement       $   (421)     $  —        $  (421)      $  —
Gain on sale of facilities  $   —         $  —        $  (11,539)   $  —
Total adjustments to GAAP   $   6,371     $  1,718    $  (3,009)    $  4,568
operating income
Non-GAAP operating income   $   2,611     $  5,779    $  6,802      $  10,411
Non-GAAP operating income   3.5%          7.0%        4.5%          6.4%
percentage
Non-GAAP Net Income         Three Months Ended        Six Months Ended
                            December 31,  January 1,  December 31,  January 1,
                            2012          2012        2012          2012
GAAP net (loss) income      $   (4,206)   $  4,107    $  8,709      $  5,689
Adjustments:
Stock based compensation    $   1,616     $  1,281    $  3,784      $  3,176
expense
Restructuring charge, net   $   5,176     $  437      $  5,167      $  1,392
of reversals
Litigation Settlement       $   (421)     $  —        $  (421)      $  —
Gain on sale of facilities  $   —         $  —        $  (11,539)   $  —
Currency loss from closing  $   616       $  —        $  465        $  —
of a foreign subsidiary
Total adjustments to GAAP   $   6,987     $  1,718    $  (2,544)    $  4,568
net income
Non-GAAP net income         $   2,781     $  5,825    $  6,165      $  10,257
Earnings per share
Non-GAAP diluted net income $   0.03      $  0.06     $  0.06       $  0.11
per share
Shares used in diluted net
income per share            94,501        94,118      95,514        94,056
calculation
Free Cash Flow              Three Months Ended        Six Months Ended
                            December 31,  January 1,  December 31,  January 1,
                            2012          2012        2012          2012
Cash flow provided by       $   1,025     $  7,899    $  8,077      $  3,954
operations
Add: PP&E CapEx spending    $   (1,464)   $  (1,263)  $  (3,026)    $  (2,011)
Total free cash flow        $   (439)     $  6,636    $  5,051      $  1,943



SOURCE Extreme Networks, Inc.

Website: http://www.extremenetworks.com
Contact: Extreme Networks, Investor Relations, +1-408-579-3030,
investor_relations@extremenetworks.com or Public Relations, +1-408-579-3483,
gcross@extremenetworks.com