Exhibit 99.1
FOR IMMEDIATE RELEASE
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| For more information, contact: | | |
| Extreme Networks | | |
| Investor Relations | | Public Relations |
| 408/579-3030 | | 408/579-2963 |
| investor_relations@extremenetworks.com | | vbellofatto@extremenetworks.com |
EXTREME NETWORKS REPORTS INCREASED REVENUE AND PROFITABILITY
Company announces $50 million share repurchase program
SANTA CLARA, Calif., Oct. 26, 2005– Extreme Networks, Inc. (Nasdaq: EXTR), a leader in open converged networks, today announced financial results for its fiscal first quarter ended Oct. 2, 2005.
Net revenue for the first quarter of fiscal 2006 was $97.9 million, up 3 percent from the first quarter a year-ago. On a GAAP basis, the Company recorded net income of $4.4 million or $0.03 per diluted share. Included in the Company’s results on a GAAP basis was $1.9 million of expense for stock-based compensation. Excluding this expense, earnings per diluted share were $0.05, an increase from $0.03 per share in the first quarter a year ago.
These results represented the Company’s seventh consecutive quarter of year-over-year revenue growth and gross margin expansion.
Extreme Networks also announced that its Board of Directors has authorized the repurchase of up to $50 million of the Company’s common stock.
“Our increased revenue and profitability demonstrate both market acceptance for our open converged networking platform, and our ability to manage the business to our financial plan,” said Gordon L. Stitt, CEO of Extreme Networks. “As a measure of the confidence we have in our competitive position, we are implementing a $50 million share repurchase program.”
Gross margin for the quarter, on a GAAP basis, was 54.4 percent. Excluding expense for stock-based compensation, gross margin was 54.7 percent, an increase of 1.5 percent of net revenue compared to the first quarter a year ago.
Operating expenses, on a GAAP basis were $49.4 million for the quarter. Excluding expense for stock-based compensation, operating expenses were $47.8 million or 48.8 percent of net revenue, up slightly from 48.2 percent of net revenue in the same period a year ago.
Operating income, on a GAAP basis was $3.9 million for the quarter. Excluding $1.9 million in stock-based compensation, operating income was $5.8 million or 5.9 percent of sales, up from 5.0 percent of net revenue in the first quarter a year ago.
Cash provided by operations during the first quarter was $10.8 million. Cash, cash equivalents and investments at the end of the quarter were $450.3 million.
Revenues in the U.S. were $45.1 million in the first quarter of fiscal 2006, or 46 percent of total consolidated revenue; international revenues were $52.8 million or 54 percent of total consolidated revenue.
Management Expectations
The Company currently anticipates that revenues for its second fiscal quarter, ending Jan. 1, 2006, will be flat to up 5 percent from revenues in the just concluded first fiscal quarter. The Company anticipates that gross margins will be in a range of 54 percent to 55 percent of sales, excluding expense for stock-based compensation, and that operating expenses will be in a range of $47 million to $48 million, excluding expense for stock-based compensation.
Quarterly Business Highlights
| | • | | Samsung Electronics selected Extreme Networks for high performance network for new global Research and Development facility |
| | • | | Leading UK publication names BlackDiamond 8800 “Product of the Year” |
| | • | | The BlackDiamond 8800 prevails over competitors’ products in 10 Gigabit Ethernet switch tests for “Best-in-Test” award by Sweden’sNetwork & Communication magazine |
| | • | | The UK’s University of Reading deploys Extreme Networks switching solutions for a campus network |
| | • | | France’s Televison Publicite, a subsidiary of the France Television Group, chooses Extreme Networks for a secure 10 Gigabit Ethernet network |
| | • | | Extreme Networks continues its relationship with Korea’s KT Ntopia by delivering a new residential metro Ethernet network |
Conference Call
Extreme Networks will host a conference call to discuss these results today at 5:00 p.m. EDT (2:00 p.m. PDT), for more information visithttp://www.extremenetworks.com/aboutus/investor/
Financial information to be discussed during the conference call is posted on the Investor Relations section of the Company’s website (www.extremenetworks.com).
Extreme Networks
Extreme Networks is a leader in open converged networks. Its innovative network architecture provides Enterprises and Metro Service Providers with the resiliency, adaptability and simplicity required for a true converged network that supports voice, video and data, over a wired and wireless infrastructure, while delivering high-performance and advanced security features. For more information, please visit www.extremenetworks.com
Non-GAAP Financial Measures
Extreme Networks provides all financial information required in accordance with generally accepted accounting principles (GAAP). In the first fiscal quarter of 2006, the Company adopted Financial Accounting Standards Board Statement No. 123(R), which requires companies to recognize the compensation cost associated with share-based payments in their financial statements. As a result, the financial statements for the first fiscal quarter of 2006 include the new stock-based compensation expense, however, comparable prior year periods are not required to be restated. Therefore, to supplement Extreme Networks’ consolidated financial statements presented in accordance with GAAP, the Company has provided non-GAAP financial information, which is adjusted to exclude all stock-based compensation expense. This non-GAAP reporting provides for comparable financial information and can enhance the understanding of the Company’s ongoing performance as a business. Therefore, Extreme Networks plans to use both GAAP and non-GAAP reporting internally to evaluate and manage its operations.
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Extreme Networks, ExtremeWare and BlackDiamond are registered trademarks of Extreme Networks, Inc., in the United States and other countries. All other marks are the property of their respective holders.
This announcement contains forward-looking statements that involve risks and uncertainties, including statements regarding our expectations for future operating results. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including, but not limited to: our effectiveness in controlling expenses, fluctuations in demand for our products and services; a highly competitive business environment for network switching equipment; the possibility that we might experience delays in the development of new technology and products; customer response to our new technology and product; and a dependency on third parties for certain components and for the manufacturing of our products. We undertake no obligation to update the forward-looking information in this release. More information about potential factors that could affect our business and financial results is included in our 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 is on file with the Securities and Exchange Commission (http://www.sec.gov).
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)
(Unaudited)
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| | | Three Months Ended
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| | | October 2, 2005
| | September 26,
2004
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Net revenues: | | | | | | |
Product | | $ | 81,917 | | $ | 81,172 |
Service | | | 16,005 | | | 13,914 |
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Total net revenues | | | 97,922 | | | 95,086 |
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Cost of revenues: | | | | | | |
Product(1) | | | 35,926 | | | 36,302 |
Service(1) | | | 8,708 | | | 8,228 |
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Total cost of revenues | | | 44,634 | | | 44,530 |
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Gross margin: | | | | | | |
Product | | | 45,991 | | | 44,870 |
Service | | | 7,297 | | | 5,686 |
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Total gross margin | | | 53,288 | | | 50,556 |
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Operating expenses: | | | | | | |
Sales and marketing(1) | | | 25,916 | | | 23,230 |
Research and development(1) | | | 16,263 | | | 15,399 |
General and administrative(1) | | | 7,175 | | | 7,123 |
Amortization of deferred stock compensation(1) | | | — | | | 62 |
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Total operating expenses | | | 49,354 | | | 45,814 |
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Operating income | | | 3,934 | | | 4,742 |
Other income, net | | | 929 | | | 138 |
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Income before income taxes | | | 4,863 | | | 4,880 |
Provision for income taxes | | | 510 | | | 754 |
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Net income | | $ | 4,353 | | $ | 4,126 |
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Net income per share — basic | | $ | 0.04 | | $ | 0.03 |
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Net income per share — diluted | | $ | 0.03 | | $ | 0.03 |
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Shares used in per share calculation — basic | | | 123,018 | | | 120,636 |
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Shares used in per share calculation — diluted | | | 124,754 | | | 123,376 |
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(1)Includes stock-based compensation expense as follows: | | | | | | |
Cost of product revenue | | $ | 170 | | | — |
Cost of service revenue | | | 108 | | | — |
Sales and marketing | | | 782 | | $ | 12 |
Research and development | | | 525 | | | 3 |
General and administrative | | | 285 | | | — |
Amortization of deferred stock compensation | | | — | | | 62 |
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Total stock-based compensation expense | | $ | 1,870 | | $ | 77 |
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EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
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| | | October 2,
2005
| | July 3,
2005
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Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 73,145 | | $ | 127,470 |
Short-term investments | | | 255,884 | | | 127,889 |
Accounts receivable, net | | | 30,058 | | | 30,778 |
Inventories | | | 21,373 | | | 25,943 |
Prepaid expenses and other current assets | | | 7,377 | | | 12,410 |
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Total current assets | | | 387,837 | | | 324,490 |
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Property and equipment, net | | | 49,236 | | | 50,438 |
Marketable securities | | | 121,256 | | | 185,045 |
Other assets | | | 21,619 | | | 23,641 |
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Total assets | | $ | 579,948 | | $ | 583,614 |
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| Liabilities and stockholders’ equity | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 17,815 | | $ | 18,283 |
Deferred revenue | | | 34,246 | | | 36,688 |
Accrued warranty | | | 7,333 | | | 7,471 |
Other accrued liabilities | | | 38,866 | | | 42,462 |
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Total current liabilities | | | 98,260 | | | 104,904 |
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Other long-term liabilities | | | 15,265 | | | 16,913 |
Deferred revenue, less current portion | | | 11,306 | | | 13,785 |
Convertible subordinated notes | | | 200,000 | | | 200,000 |
Total stockholders’ equity | | | 255,117 | | | 248,012 |
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Total liabilities and stockholders’ equity | | $ | 579,948 | | $ | 583,614 |
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EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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| | | Three Months Ended
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| | | October 2, 2005
| | | September 26, 2004
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Cash flows from operating activities: | | | | | | | | |
Net income | | $ | 4,353 | | | $ | 4,126 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 3,165 | | | | 4,392 | |
Provision for doubtful accounts | | | 614 | | | | — | |
Provision for excess and obsolete inventory | | | 155 | | | | — | |
Amortization of warrant | | | 1,892 | | | | 1,892 | |
Amortization of deferred stock compensation | | | — | | | | 62 | |
Stock-based compensation | | | 1,870 | | | | — | |
Loss on disposal of assets | | | — | | | | 50 | |
Net changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable | | | 1,336 | | | | 4,210 | |
Inventories | | | 4,439 | | | | 1,943 | |
Prepaid expenses and other current and noncurrent assets | | | 3,933 | | | | (2,041 | ) |
Accounts payable | | | (468 | ) | | | 1,449 | |
Deferred revenue | | | (4,921 | ) | | | (3,082 | ) |
Accrued warranty | | | (138 | ) | | | 773 | |
Other accrued liabilities | | | (5,409 | ) | | | 113 | |
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Net cash provided by operating activities | | | 10,821 | | | | 13,887 | |
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Cash flows from investing activities: | | | | | | | | |
Capital expenditures | | | (1,963 | ) | | | (2,160 | ) |
Purchases and maturities of investments, net | | | (64,559 | ) | | | (5,955 | ) |
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Net cash used in investing activities | | | (66,522 | ) | | | (8,115 | ) |
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Cash flows from financing activities: | | | | | | | | |
Proceeds from issuance of common stock | | | 1,376 | | | | 1,405 | |
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Net cash provided by financing activities | | | 1,376 | | | | 1,405 | |
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Net increase (decrease) in cash and cash equivalents | | | (54,325 | ) | | | 7,177 | |
Cash and cash equivalents at beginning of period | | | 127,470 | | | | 59,164 | |
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Cash and cash equivalents at end of period | | $ | 73,145 | | | $ | 66,341 | |
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EXTREME NETWORKS, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands, except per-share amounts)
(Unaudited)
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| | | Three Months Ended
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| | | October 2, 2005
| | September 26, 2004
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GAAP net income | | $ | 4,353 | | $ | 4,126 |
Adjustments: | | | | | | |
Stock-based compensation | | | 1,870 | | | 77 |
Income tax effect | | | — | | | — |
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Total non-GAAP adjustments | | | 1,870 | | | 77 |
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Non-GAAP net income | | $ | 6,223 | | $ | 4,203 |
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Non-GAAP net income per share — basic | | $ | 0.05 | | $ | 0.03 |
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Non-GAAP net income per share — diluted | | $ | 0.05 | | $ | 0.03 |
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Shares used in per share calculation — basic | | | 123,018 | | | 120,636 |
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Shares used in per share calculation — diluted | | | 124,754 | | | 123,376 |
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