TechDogs-"Extreme Networks Reports Third Quarter Fiscal Year 2023 Financial Results"

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Extreme Networks Reports Third Quarter Fiscal Year 2023 Financial Results

By Business Wire

Business Wire
Overall Rating

Delivers Record Revenue, Operating Margin, and EPS and Raises FY23 Outlook

MORRISVILLE, N.C.--(BUSINESS WIRE)--Extreme Networks, Inc. (“Extreme”) (Nasdaq: EXTR) today released financial results for its third fiscal quarter ended March 31, 2023.

Fiscal Third Quarter Results:

  • Revenue $332.5 million, up 16% year-over-year, and up 4% quarter-over-quarter
  • SaaS ARR* $117 million, up 22% year-over-year, and up 2% quarter-over-quarter
  • GAAP diluted EPS $0.17, compared to $0.10 in Q3 last year and $0.13 last quarter
  • Non-GAAP diluted EPS $0.29, compared to $0.21 in Q3 last year and $0.27 last quarter
  • GAAP gross margin 57.7%, compared to 56.5% in Q3 last year
  • Non-GAAP gross margin 59.1%, compared to 58.0% in Q3 last year
  • GAAP operating margin 8.9%, compared to 6.1% in Q3 last year
  • Non-GAAP operating margin 15.6%, compared to 12.5% in Q3 last year
  • Net cash provided by operating activities of $48.2 million
  • Free cash flow of $45.8 million
  • Repurchased 1.35 million shares for $25.0 million

President and CEO Ed Meyercord stated: "Extreme delivered another quarter of record results punctuated by improving supply chain conditions, the strengthening of our competitive position, and solid execution. Market share gains were highlighted by 20% growth in bookings from new customers during the quarter, which drove sequential product bookings growth of 6%. The combination of our enterprise cloud and fabric networking solutions delivers a simplified experience for customers and provides our team a competitive advantage in the field. Our funnel of opportunities is up double-digits and we expect higher sequential bookings growth as we head into Q4."

"We believe the improving supply chain and cloud software subscription growth will support an over 20% year-over-year revenue increase in Q4. We also expect earnings to more than double year-over-year, on both a GAAP and Non-GAAP basis, driven by gross margin expansion and operating leverage," continued Meyercord.

Interim CFO Cristina Tate noted: "Extreme's record quarterly revenue and operating profit resulted in another quarter of strong cash flow, which allowed us to repurchase $25 million of stock and reduce our debt by $25 million, lowering our net debt to $34 million. We've raised our full year FY23 revenue outlook to 16% year-over-year, which is the midpoint of our guidance. We remain committed to our long-term outlook of mid-teens topline growth and margin expansion through FY25."

Recent Key Highlights:

  • Extreme extended its industry-leading Fabric solution to the edge of the network, making it simple for customers to securely connect and manage distributed environments from a single platform: ExtremeCloud. As a result, customers can lower operating costs, automate IT workflows for efficiency and improve application performance across their organization.
  • Extreme will host its annual user conference, Extreme Connect, from May 8-11, 2023, in Berlin, Germany. The event will include innovative new product introductions, expert guest speakers, hands-on demonstrations and more. Tune in virtually to a 60-minute live news broadcast from Extreme Connect Berlin starting at 3 p.m. CEST/9 a.m. ET on May 9 and 10 via Extreme’s LinkedIn or YouTube channel.
  • Kroger selected Extreme as its partner to help drive impactful, engaging in-store experiences and streamline store operations as it creates the store of the future. Kroger will deploy ExtremeCloud IQ cloud management and Wi-Fi 6E access points to create optimized experiences for customers and associates with services including “scan-as-you-go,” inventory location and temperature sensing applications.
  • In partnership with Comcast, Extreme deployed Wi-Fi 6E Access Points, ExtremeCloud IQ and Universal Switches at Oracle Park, home of the San Francisco Giants, making it the first major sports venue to be 100% Wi-Fi 6E ready. In partnership with Verizon, Extreme deployed the largest outdoor Wi-Fi 6 network in the U.S. at Daytona International Speedway.
  • Global healthcare organizations are increasingly investing in Extreme solutions including Dr. Sulaiman Al Habib Medical Services Group (HMG), one of the largest providers of comprehensive healthcare services in Saudi Arabia, as well as Prima CARE in the US, West Suffolk NHS Foundation Trust in the UK and ASST Mantova in Italy. As a result, these organizations can support bandwidth-intensive medical applications, ensure security of devices and patient data, improve operational efficiency, and progress patient care.
  • SK IE Technology Co., one of South Korea’s leading materials solutions providers and manufacturer of EV batteries, selected Extreme’s Universal wired and wireless solutions to support operations at their battery plants, enabling improved connectivity for operational needs including forklift monitoring and tracking key battery components.
  • Kingston University, one of London’s leading higher education institutions, selected Extreme to deploy a new campuswide, cloud-managed and fabric-enabled Wi-Fi 6E network. The University can now more easily secure and manage its network and better support new, innovative classroom technology, including AR/VR, high-resolution video streaming, IoT devices used in classrooms and personal devices brought in by students and staff.
  • Catawba College will deploy a new end-to-end network with a number of Extreme solutions, including ExtremeCloud IQ CoPilot. Catawba will leverage Machine Learning and AI featured in CoPilot to proactively detect network anomalies, improve network performance, reduce time consuming tasks for the IT team and streamline operations. Catawba will also offer Extreme Academy as part of its computer science curriculum, giving students a modern and foundational curriculum for a career in networking.
  • Cedar Fair Entertainment Company, one of the largest regional amusement-resort operators in the world, selected Extreme to deploy Wi-Fi 6E-ready networks across its properties to provide high-speed connectivity and bandwidth for operational needs like digital signage and cashless payments as well as guest devices. In partnership with Comcast, the network is centrally managed from the cloud, reducing the time it takes for IT teams to identify and resolve issues and helping create better guest experiences.

Fiscal Q3 2023 Financial Metrics:

(in millions, except percentages and per share information)

GAAP Results

Three Months Ended

March 31,
2023

March 31,
2022

Change

Product

$

241.1

$

198.4

$

42.7

22

%

Service and subscription

91.4

87.1

4.3

5

%

Total net revenue

$

332.5

$

285.5

$

47.0

16

%

Gross margin

57.7

%

56.5

%

1.2

%

Operating margin

8.9

%

6.1

%

2.8

%

Net income

$

22.1

$

12.8

$

9.3

73

%

Net income per diluted share

$

0.17

$

0.10

$

0.07

70

%

Non-GAAP Results

Three Months Ended

March 31,
2023

March 31,
2022

Change

Product

$

241.1

$

198.4

$

42.7

22

%

Service and subscription

91.4

87.1

4.3

5

%

Total net revenue

$

332.5

$

285.5

$

47.0

16

%

Gross margin

59.1

%

58.0

%

1.1

%

Operating margin

15.6

%

12.5

%

3.1

%

Net income

$

38.8

$

27.4

$

11.4

42

%

Net income per diluted share

$

0.29

$

0.21

$

0.08

38

%

  • Q3 ending cash balance was $203.0 million, an increase of $0.5 million from the end of Q2. This was primarily driven by operating cash flow generation of $48.2 million, partially offset by cash usage of $45.5 million for financing activities primarily for payments against our term loan and stock repurchases and cash usage of $2.4 million for investing activities for capital expenditures.
  • During Q3, we repurchased a total of 1.35 million shares of our common stock on the open market at a total cost of $25.0 million with a weighted average price of $18.51 per share.
  • Q3 accounts receivable balance was $158.6 million, an increase of $6.5 million from the end of Q2 and a decrease of $4.4 million from Q3 last year. Days sales outstanding** was 43 days, a decrease of 1 day from Q2 and a decrease of 8 days from Q3 last year.
  • Q3 ending inventory was $70.3 million, an increase of $6.5 million from Q2 and an increase of $32.6 million from Q3 last year. The quarter-over-quarter and year-over-year increases were primarily driven by an increase in finished goods inventory.
  • Q3 ending gross debt*** was $237.0 million, a decrease of $25.0 million from the end of Q2 and decrease of $78.8 million from Q3 last year. The decrease from Q3 last year resulted primarily from principal payments on our term loan. Q3 ending net debt**** was $34.0 million, a decrease of $25.5 million from $59.5 million in Q2 and a decrease of $115.2 million from $149.2 from Q3 last year.

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

Free Cash Flow

Three Months Ended

Nine Months Ended

March 31,
2023

March 31,
2022

March 31,
2023

March 31,
2022

Cash flow provided by operations

$

48,182

$

1,573

$

168,519

$

64,055

Less: Property and equipment capital expenditures

(2,363

)

(4,477

)

(8,634

)

(11,130

)

Total free cash flow

$

45,819

$

(2,904

)

$

159,885

$

52,925

*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, deferred revenue and other U.S. GAAP accounting. 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.

**Days Sales Outstanding (DSO): DSO is calculated by dividing accounts receivable, net at the end of the quarter by revenue recognized during the quarter, multiplied by the total days in the quarter.

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

Gross debt

Cash

Net debt

$

237.0

$

203.0

$

34.0

Business Outlook:

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

For its fourth quarter of fiscal 2023, ending June 30, 2023, the Company is targeting:

(in millions, except percentages and per share information)

Low-End

High-End

FQ4'23 Guidance – GAAP

Total net revenue

$

340.0

$

350.0

Gross margin

57.7

%

59.7

%

Operating margin

8.9

%

10.8

%

Net income per diluted share

$

0.16

$

0.22

Shares outstanding used in calculating GAAP EPS

133.2

133.2

FQ4’23 Guidance – Non-GAAP

Total net revenue

$

340.0

$

350.0

Gross margin

59.0

%

61.0

%

Operating margin

15.5

%

17.3

%

Net income per diluted share

$

0.28

$

0.34

Shares outstanding used in calculating non-GAAP EPS

133.2

133.2

The following table shows the GAAP to non-GAAP reconciliation for Q4 FY’23 guidance:

Gross Margin
Rate

Operating
Margin Rate

Earnings per
Share

GAAP

57.7% - 59.7%

8.9% - 10.8%

$0.16 - $0.22

Estimated adjustments for:

Share-based compensation

0.4%

4.8%

0.12

Amortization of product intangibles

0.7%

0.7%

0.02

Amortization of non-product intangibles

0.2%

0.4%

0.01

Restructuring

0.1%

0.00

Litigation charges

0.3%

0.01

System transition cost

0.3%

0.01

Tax adjustment

(0.05)

Non-GAAP

59.0% - 61.0%

15.5% - 17.3%

$0.28 - $0.34

The total of percentage rate changes may not equal the total change in all cases due to rounding.

Conference Call:

Extreme will host a conference call at 8:00 a.m. Eastern (5:00 a.m. Pacific) today to review the third fiscal quarter results as well as the business outlook for the fourth quarter ending June 30, 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 Q3'23 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 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 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 COVID-19, and any worsening of the global business and economic environment as a result, on the Company’s business.

More information about potential factors that could affect the Company's business and financial results are described in “Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022, Quarterly Reports on Form 10-Q for the quarter ended September 30, 2022 and December 31, 2022, 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,
2023

June 30,
2022

ASSETS

Current assets:

Cash

$

202,996

$

194,522

Accounts receivable, net

158,637

184,097

Inventories

70,310

49,231

Prepaid expenses and other current assets

70,129

61,239

Total current assets

502,072

489,089

Property and equipment, net

45,230

49,578

Operating lease right-of-use assets, net

36,311

36,454

Intangible assets, net

19,622

32,515

Goodwill

394,668

400,144

Other assets

70,496

60,730

Total assets

$

1,068,399

$

1,068,510

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt, net of unamortized debt issuance costs of $2,128 and $2,276, respectively

$

35,872

$

33,349

Accounts payable

95,960

84,338

Accrued compensation and benefits

48,055

53,710

Accrued warranty

12,302

10,852

Current portion, operating lease liabilities

11,881

13,956

Current portion, deferred revenue

268,561

238,262

Other accrued liabilities

54,215

65,714

Total current liabilities

526,846

500,181

Deferred revenue, less current portion

195,675

163,357

Long-term debt, less current portion, net of unamortized debt issuance costs of $812 and $2,430, respectively

198,188

270,570

Operating lease liabilities, less current portion

33,446

33,256

Deferred income taxes

7,789

7,717

Other long-term liabilities

3,263

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; 143,296 and 139,742 shares issued, respectively; 128,888 and 129,263 shares outstanding, respectively

143

140

Additional paid-in-capital

1,160,289

1,115,416

Accumulated other comprehensive loss

(12,922

)

(3,055

)

Accumulated deficit

(881,425

)

(934,072

)

Treasury stock at cost, 14,408 and 10,479 shares, respectively

(162,893

)

(88,086

)

Total stockholders’ equity

103,192

90,343

Total liabilities and stockholders’ equity

$

1,068,399

$

1,068,510

EXTREME NETWORKS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

March 31,
2023

March 31,
2022

March 31,
2023

March 31,
2022

Net revenues:

Product

$

241,058

$

198,373

$

670,779

$

574,636

Service and subscription

91,449

87,135

277,765

259,489

Total net revenues

332,507

285,508

948,544

834,125

Cost of revenues:

Product

108,915

92,582

312,265

264,459

Service and subscription

31,654

31,568

95,978

93,919

Total cost of revenues

140,569

124,150

408,243

358,378

Gross profit:

Product

132,143

105,791

358,514

310,177

Service and subscription

59,795

55,567

181,787

165,570

Total gross profit

191,938

161,358

540,301

475,747

Operating expenses:

Research and development

54,837

49,615

158,444

145,461

Sales and marketing

83,962

72,840

242,882

213,932

General and administrative

21,683

17,714

64,315

52,594

Acquisition and integration costs

2,833

390

6,456

Restructuring and related charges

1,363

407

2,320

978

Amortization of intangibles

510

638

1,537

2,596

Total operating expenses

162,355

144,047

469,888

422,017

Operating income

29,583

17,311

70,413

53,730

Interest income

774

109

2,055

302

Interest expense

(3,946

)

(2,794

)

(11,656

)

(9,750

)

Other income (expense), net

(367

)

54

142

297

Income before income taxes

26,044

14,680

60,954

44,579

Provision for income taxes

3,913

1,856

8,307

5,718

Net income

$

22,131

$

12,824

$

52,647

$

38,861

Basic and diluted income per share:

Net income per share – basic

$

0.17

$

0.10

$

0.41

$

0.30

Net income per share – diluted

$

0.17

$

0.10

$

0.39

$

0.29

Shares used in per share calculation – basic

128,816

129,913

129,864

129,321

Shares used in per share calculation – diluted

133,025

133,415

133,716

133,779

EXTREME NETWORKS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended

March 31,
2023

March 31,
2022

Cash flows from operating activities:

Net Income

$

52,647

$

38,861

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

Depreciation

15,014

15,324

Amortization of intangible assets

11,415

15,670

Reduction in carrying amount of right-of-use asset

9,274

11,641

Provision for doubtful accounts

245

(3

)

Share-based compensation

46,561

32,630

Deferred income taxes

338

228

Non-cash interest expense

756

3,611

Other

(6,148

)

41

Changes in operating assets and liabilities, net of acquisition:

Accounts receivable

25,216

(5,068

)

Inventories

(21,989

)

(4,925

)

Prepaid expenses and other assets

2,226

(28,054

)

Accounts payable

12,570

8,481

Accrued compensation and benefits

(6,158

)

(28,227

)

Operating lease liabilities

(11,172

)

(14,524

)

Deferred revenue

46,502

16,725

Other current and long-term liabilities

(8,778

)

1,644

Net cash provided by operating activities

168,519

64,055

Cash flows from investing activities:

Capital expenditures

(8,634

)

(11,130

)

Business acquisition, net of cash acquired

(69,517

)

Net cash used in investing activities

(8,634

)

(80,647

)

Cash flows from financing activities:

Payments on debt obligations

(71,625

)

(31,000

)

Repurchase of common stock

(74,807

)

(24,974

)

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

(1,685

)

(3,213

)

Payment of contingent consideration obligations

(1,024

)

Deferred payments on an acquisition

(3,000

)

(3,000

)

Net cash used in financing activities

(151,117

)

(63,211

)

Foreign currency effect on cash

(294

)

(525

)

Net increase (decrease) in cash

8,474

(80,328

)

Cash at beginning of period

194,522

246,894

Cash at end of period

$

202,996

$

166,566


Contacts

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

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

Read full story here

First published on Wed, Apr 26, 2023

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