Extreme Networks Reports Second Quarter Fiscal Year 2024 Financial Results

Financial Results In-line With Previously Revised Second Quarter Outlook

MORRISVILLE, N.C.–(BUSINESS WIRE)–Extreme Networks, Inc. (“Extreme”) (Nasdaq: EXTR) today released financial results for its second quarter ended December 31, 2023.

“The integration of AI, security and analytics into a single platform is a key differentiator for Extreme and helped drive 37% subscription ARR growth in the quarter. We enhance network security, visibility and performance through our AIOps and machine learning capabilities and Zero Trust security posture. With our One Network, One Cloud strategy, we make networking simple and flexible and help customers drive meaningful impact across their organizations. Meanwhile competitors in our space remain challenged by portfolio integration and rationalization,” said Ed Meyercord, President and Chief Executive Officer.

“The networking industry, like much of IT, is exiting the final stage of the COVID-induced era of supply chain constraints, which is still impacting our business. As a result, our distributors and partners have lowered inventory purchases, which we expect to accelerate in the third quarter. We expect to emerge in the fourth quarter at a more normalized level of revenue and earnings. Our bookings trends and funnel of new opportunities are a better reflection of customer demand. We’re seeing stabilization across EMEA and growth in APAC. And, we remain focused on innovation with this week’s introduction of new Wi-Fi 7 access points and 4000 Series Universal Switches, which help highly distributed enterprise organizations improve network connectivity, security and application performance. These trends, and our expanded go to market opportunities, give us confidence that we are positioned for a return to meaningful growth in FY25,” concluded Meyercord.

Kevin Rhodes, Executive Vice President and Chief Financial Officer, stated, “Despite lower revenue in the second quarter, we improved our gross margins and optimized our operating expenses to maintain a healthy operating margin profile during the quarter. In the third quarter, we expect higher sell-through than sell-in, which will have a more significant impact on our operating results. As a result, we plan to take cost actions to drive a recovery in EPS and cash flow. Heading into the fourth quarter, we are expecting improved sequential revenue growth based on our funnel and the seasonality of our business, led by the Education vertical. This will position us to deliver improved profitability and cash flow in FY25.”

Fiscal Second Quarter Results:

• Revenue $296.4 million, down 6.9% year-over-year
• SaaS ARR $158.0 million, up 37.4% year-over-year
• GAAP diluted EPS $0.03, compared to $0.13 in the prior year quarter
• Non-GAAP diluted EPS $0.24, compared to $0.27 in the prior year quarter
• GAAP gross margin 61.9%, compared to 57.1% in the prior year quarter
• Non-GAAP gross margin 62.5%, compared to 58.5% in the prior year quarter
• GAAP operating margin 3.5%, compared to 7.4% in the prior year quarter
• Non-GAAP operating margin 14.8%, compared to 14.9% in the prior year quarter

Liquidity:

• During Q2, we generated net cash flow from operations of $34.3 million and free cash flow of $28.6 million.
• During Q2, we repurchased 1.5 million shares of our common stock on the open market at a total cost of $25.0 million with a weighted average price of $16.81 per share.
• Q2 ending cash balance was $221.4 million, a decrease of $3.0 million from the end of Q1 2024 and an increase of $18.9 million from the end of Q2 in the prior year.
• Q2 net cash was $26.4 million, a decrease of $0.5 million from net cash of $26.9 million from the end of Q1 2024 and an increase of $85.9 million from net debt of $59.5 million at the end of Q2 in the prior year.

Recent Key Highlights:

• Extreme announced two new hardware solutions: the AP5020, a new Wi-Fi 7 Universal access point designed to support high-bandwidth, latency-sensitive applications and IoT devices; and the 4000 Series cloud-managed switches, the latest addition to Extreme’s Universal portfolio which deliver faster setup time by eliminating nearly all manual configurations. Both solutions leverage AIOps and ML features of the ExtremeCloud IQ (XIQ) platform to help proactively identify network issues and make recommendations that help reduce IT time to resolution. These solutions also integrate with ExtremeCloud Universal ZTNA, strengthening security as organizations move to a Zero Trust architecture across their network.
• Extreme introduced ExtremeCloud™ Universal Zero Trust Network Access (ZTNA), a subscription service for ExtremeCloud customers and the first network security offering to integrate network, application and device access security within a single solution. With unified observability, visualization and reporting, Extreme has removed complexity for IT teams when it comes to managing and securing user access anywhere across the Infinite Enterprise.
• In partnership with Retail Systems Research (RSR), Extreme released a report titled “The World is Connected: The Store Must Be Too,” which found that despite 75% of respondents saying demands on network bandwidth were a major concern, the most successful retailers have leaned into Wi-Fi, AI and security solutions to improve both in-store experiences and overall store operations.
• LIVVO Hotel Group, a global hospitality group with 30 luxury resorts worldwide, needed to update its network to improve wireless connectivity for staff and guests and support evolving business needs across its 30 luxury properties. With a new network from Extreme deployed in partnership with Caribecan Canarias and TD SYNNEX, the hotel can provide superior guest experiences and unify network management across all locations with Wi-Fi 6 and XIQ.
• LG Energy Solution has extended its relationship with Extreme and will deploy a centralized wireless network at its new EV battery factory in Ohio, a joint venture manufacturing plant with Honda Motor Co., Ltd., and in its factory in Michigan, a joint venture with General Motors. The new networks will improve support for all robotics and network-connected machinery on the manufacturing floor, and XIQ-Controller will simplify network management to ensure peak performance and improve operational efficiency and factory production.
• Al Hamra Hospital and the Takhassusi Maternity Hospital, projects of Al Habib Medical Group in the Kingdom of Saudi Arabia, will deploy fabric-enabled wired and wireless networks managed through XIQ, enabling the hospital’s IT team to leverage easy cloud management and AI-driven insights to ensure connectivity for mission-critical medical IoT devices. Extreme partner Cloud Solutions will manage the deployment.
• London South Bank University, Leeds Beckett University and Kingston University have all selected Extreme to help them increase student engagement, deliver immersive digital learning experiences, provide high-performance campus wireless, and improve IT operations. Universities choose Extreme to help them adopt a forward-looking, long-term strategy for on-campus technology.
• The Wells Fargo Center, home of the Philadelphia Flyers and Philadelphia 76ers, and Canada Life Centre, home of the Winnipeg Jets, chose Extreme’s Wi-Fi 6 and Wi-Fi 6E-ready solutions to streamline arena operations and gain actionable insights to create more personalized fan experiences.
• Extreme continues to be recognized both for responsible business practices and innovation. Investor’s Business Daily recognized Extreme Networks on its list of the best stocks for Environmental, Societal and Governance (ESG) investors in 2023. These are the top 100 companies out of over 6,000 potential contenders. Further, Fast Company named XIQ as one of the Next Big Things in Tech in the enterprise networking category. Editors chose Extreme based on ExtremeCloud IQ’s AIOps and Digital Twin features.

* Prior to fiscal 2024, subscription and support revenue was referred to as service and subscription revenue, however, the composition of subscription and support revenue has not been modified.

Extreme uses the non-GAAP free cash flow metric as a measure of operating performance. Free cash flow represents GAAP net cash provided by 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):

SaaS ARR: Extreme uses SaaS annual recurring revenue (“SaaS ARR”) to identify the annual recurring revenue of XIQ and other subscription revenue, based on the annualized value of quarterly subscription revenue and term-based licenses. We believe that SaaS ARR is an important metric because it is driven by our ability to acquire new customers and to maintain and expand our relationships with existing customers. SaaS ARR should be viewed independently of revenue or deferred revenue that are accounted for under U.S. GAAP. SaaS ARR does not have a standardized meaning and therefore may not be comparable to similarly titled measures presented by other companies. SaaS ARR is not intended to be a replacement for forecasts of revenue.

Gross Debt: Gross debt is defined as long-term debt and the current portion of long-term debt as shown on the balance sheet plus unamortized debt issuance costs, if any.

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

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 third quarter of fiscal 2024, ending March 31, 2024, the Company is targeting:

The following table shows the GAAP to non-GAAP reconciliation for Q3 FY’24 guidance:

For its Fiscal Q4’24, ending June 30, 2024, the Company is targeting:

• Revenue of $265.0 – $275.0 million
• GAAP and non-GAAP gross margin to be flat to up slightly from Q3
• Non-GAAP operating margin of 10% – 13%
• GAAP operating margin of (2)% – 1%

No reconciliation of the forward-looking non-GAAP financial measure to the most directly comparable GAAP financial measure for Extreme’s Fiscal Q4’24 non-GAAP gross margin target and Fiscal Q4’24 non-GAAP operating margin target are included in this press release because, due to the high variability and difficulty in making accurate forecasts and projections of some of the excluded information, together with some of the excluded information not being ascertainable or accessible, Extreme is unable to quantify certain amounts that would be required to be included in the most directly comparable GAAP financial measure without unreasonable efforts.

Conference Call:

Extreme will host a conference call at 8:00 a.m. Eastern (5:00 a.m. Pacific) today to review the second quarter results of fiscal 2024 as well as the business outlook for the third quarter of fiscal 2024 ending March 31, 2024, including significant factors and assumptions underlying the targets noted above. The conference call will be available to the public through a live audio web broadcast via the internet at http://investor.extremenetworks.com and a replay of the call will be available on the website for at least 7 days following the call. To access the call, please go to this link (Extreme Networks Q2’24 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 profit, 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, and the tax effect of non-GAAP adjustments. The Company believes that excluding these items provides both management and investors with additional insight into its current operations, the trends affecting the Company, the Company’s marketplace performance, and the Company’s ability to generate cash from operations. Please note the Company’s non-GAAP measures may be different than those used by other companies. The additional non-GAAP financial information the Company presents should be considered in conjunction with, and not as a substitute for, the Company’s GAAP financial information.

The Company has provided a non-GAAP reconciliation of the results for the periods presented in this release, which are adjusted to exclude certain items as indicated. These measures should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures for comparable financial information and understanding of the Company’s ongoing performance as a business. Extreme uses both GAAP and non-GAAP measures to evaluate and manage its operations.

Forward-Looking Statements:

Statements in this press release, including statements regarding those concerning the Company’s business outlook and future operating metrics, financial and operating results, are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements speak only as of the date of this release. There are several important factors that could cause actual results and other future events to differ materially from those suggested or indicated by such forward-looking statements. These include, among others, risks related to global macroeconomic and business trends; the Company’s failure to achieve targeted financial metrics; a highly competitive business environment for network switching equipment and cloud management of network devices; the Company’s effectiveness in controlling expenses; the possibility that the Company might experience delays in the development or introduction of new technology and products; customer response to the Company’s new technology and products; risks related to pending or future litigation; political and geopolitical factors; and a dependency on third parties for certain components and for the manufacturing of the Company’s products.

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

Contacts

Investor Relations

Stan Kovler

919/595-4196

[email protected]

Media Contact

Amy Aylward

603/952-5138

[email protected]

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