SAN JOSE, Calif: Extreme Networks, Inc. ("Extreme") (Nasdaq: EXTR) today released financial results for its third fiscal quarter ended March 31, 2021.Fiscal Third Quarter Results: Revenue $253.4 million, up 21% year-over-year and up 5% quarter-over-quarter GAAP EPS $0.03, up from ($0.37) in Q3 last year Non-GAAP EPS $0.16, up from ($0.09) in Q3 last year GAAP gross margin 58.7% compared to 53.1% in Q3 last year Non-GAAP gross margin 61.5% compared to 56.7% in Q3 last year GAAP operating margin 4.4% compared to (18.3)% in Q3 last year Non-GAAP operating margin 11.3%, compared to (5.1)% in Q3 last year Net cash provided by operating activities of $24.7 million Free Cash Flow of $20.4 million "Our Q3 results represent the fourth consecutive quarter of sequential revenue growth and double-digit growth year-over-year across all our geographies. Extreme is coming out of COVID in a stronger position than ever before and enterprise customers are turning to Extreme's industry-leading cloud solutions to meet the new demands of the distributed enterprise. This is highlighted by ExtremeCloud IQ new subscription growth of 122% year-over-year, which in turn fueled product revenue growth of 29% year-over-year," stated Ed Meyercord, President and CEO of Extreme. "Looking ahead at Q4, we continue to expect double-digit year-over-year revenue growth as demand for our differentiated cloud-driven networking solutions continues to build. The pace of our cloud innovation for enterprise solutions is accelerating and also underpins the success of our new cloud-native infrastructure solutions in the 5G space," concluded Meyercord. "The operating leverage of our model enabled us to achieve a second consecutive quarter of non-GAAP double-digit operating margins. The combination of our strong operating performance and the reduction in inventory resulted in strong cash flow generation. Today, we are fully compliant with our bank covenants ahead of expectations and will realize meaningful interest expense savings beginning in Q4," stated Rémi Thomas, CFO of Extreme.
Recent Key Highlights:
Extreme was named the Official Wi-Fi Solutions Provider of Major League Baseball (MLB). Extreme will provide fan-facing Wi-Fi in 16 stadiums and connectivity in bullpens and dugouts in all 30 league ballparks. Installations are scheduled through 2026. As part of the partnership, Extreme will also power the network at MLB's Jackie Robinson Training Complex in Vero Beach, Florida. Through Extreme's partnership with Verizon, Darlington Raceway will deploy Extreme's wired, Wi-Fi, and analytics solutions, as well as its network management software, to provide reliable connectivity for the track which previously had no outdoor connection. Extreme installed high-density Wi-Fi 6 access points throughout the venue, enabling Darlington Raceway to enhance fan experiences and ensure all fans in the 60,000-seat venue can connect simultaneously during events. Belgium's Federal Public Service Justice refreshed its wired network infrastructure with Extreme, allowing it to offer high-speed connectivity across 240 buildings that is 20 times faster than the previous network. The new network supports the digitization of the justice system's services, including court hearings and other services to be offered remotely. Novant Health of North Carolina used Extreme's cloud-managed Wi-Fi solutions to power a COVID-19 mass vaccination event that saw over 2,220 vaccines administered in a single day. ExtremeWireless access points were activated in just one hour via ExtremeCloud IQ, enabling quick access to patient records and allowing clinic workers to simultaneously administer vaccines to 120 patients at a time. Lincoln University of Pennsylvania, a top 20 historically black college and university (HBCU) in 2021 according to U.S. News & World Report, and the nation's first degree-granting HBCU, deployed Extreme wireless access points and ExtremeCloud IQ network management solution to provide high-speed, Wi-Fi 6 connectivity throughout its 422-acre main campus and off-campus graduate center. The deployment has enabled students, faculty, and staff to easily connect with digital education resources from any device, anywhere – a need that became more pronounced with the COVID-19 pandemic and the additional requirement to offer a mix of in-person and remote instruction. Extreme will hold its annual Connect User Conference virtually on May 26-27, broadcasting over 30 unique sessions for customers, partners, and industry leaders worldwide. The online event is free to attend and will include keynote presentations from Extreme's leadership team, IT strategy breakouts, and practical how-to workshops. Register for Connect at connect.extremenetworks.com.
Fiscal Q3 2021 Financial Metrics:
(in millions, except percentages and per share information)
Q3 FY'21
Q3 FY'20
Change
GAAP Results of Operations
Product
$
176.3
$
136.5
$
39.8
29
%
Service and subscription
77.1
73.0
4.1
6
%
Total net revenue
$
253.4
$
209.5
$
43.9
21
%
Gross margin
58.7
%
53.1
%
560 bps
-
Operating margin
4.4
%
(18.3)
%
2271 bps
-
Net income (loss)
$
3.5
$
(44.4)
$
47.9
108
%
Net income (loss) per diluted share
$
0.03
$
(0.37)
$
0.40
108
%
Non-GAAP Results of Operations
Product
$
176.3
$
136.5
$
39.8
29
%
Service and subscription
77.1
73.0
4.1
6
%
Total net revenue
$
253.4
$
209.5
$
43.9
21
%
Gross margin
61.5
%
56.7
%
480 bps
-
Operating margin
11.3
%
(5.1)
%
1640 bps
-
Net income (loss)
$
20.7
$
(11.2)
$
31.9
284
%
Net income (loss) per diluted share
$
0.16
$
(0.09)
$
0.25
278
%
Q3 ending cash balance was $203.1 million, an increase of $19.2 million from the end of Q2. This was primarily driven by operating cash flow generation of $24.7 million, partially offset by cash usage of $1.1 million for financing activities, along with $4.3 million for capital expenditures. Q3 accounts receivable balance was $130.6 million, with days sales outstanding of 46, a decrease of 3 days from Q2 and an increase of 4 days from Q3 last year. Q3 ending inventory was $43.9 million, a decrease of $5.9 million from Q2 and a decrease of $22.3 million from Q3 last year. The year-over-year and quarter-over-quarter decreases in inventory largely reflect improved demand planning, SKU rationalization and higher inventory turnover. Q3 ending gross debt* was $351.5 million, a decrease of $4.8 million from the prior quarter. The $74.0 million decrease from Q3 last year resulted primarily from principal payments and payments on our revolver loan. Net debt* of $148.4 million decreased by $23.9 million from $172.3 million in Q2. 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,
2021March 31,
2020March 31,
2021March 31,
2020
Cash flow provided by operations
$
24,725
$
5,150
$
87,496
$
27,061
Less: Property and equipment capital expenditures
(4,279)
(3,192)
(12,318)
(12,630)
Total free cash flow
$
20,446
$
1,958
$
75,178
$
14,431
*Gross debt is defined as long-term and current portion of long-term debt as shown on the balance sheet plus unamortized debt issuance costs. Net debt is defined as gross debt minus cash, as shown in the table below (in millions):
Gross debt
Cash
Net debt
$
351.5
$
203.1
$
148.4
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 2021, ending June 30, 2021, the Company is targeting:
(in millions, except percentages and per share information)
Low-End
High-End
FQ4'21 Guidance – GAAP
Total Net Revenue
$
260.0
$
270.0
Gross Margin
57.8
%
58.9
%
Operating Expenses
$
141.0
$
143.0
Operating Margin
3.5
%
5.9
%
Net Income
$
2.6
$
9.4
Net Income per diluted share
$
0.02
$
0.07
Shares outstanding used in calculating GAAP EPS
131.1
131.1
FQ 4'21 Guidance – Non - GAAP
Total Net Revenue
$
260.0
$
270.0
Gross Margin
60.5
%
61.5
%
Operating Expenses
$
131.0
$
133.0
Operating Margin
10.1
%
12.2
%
Net Income
$
20.4
$
25.7
Net Income per diluted share
$
0.16
$
0.20
Shares outstanding used in calculating non-GAAP EPS
131.1
131.1
The following table shows the GAAP to non-GAAP reconciliation for Q4 FY'21 guidance:
Gross Margin
Rate
Operating
Margin Rate
Earnings per
Share
GAAP
57.8% - 58.9%
3.5% - 5.9%
$0.02 - $0.07
Estimated adjustments for:
Amortization of product intangibles
2.1%
2.1%
$0.04
Share-based compensation
0.3%
3.3%
$0.07
Restructuring
—
0.2%
—
Amortization of non-product intangibles
0.3%
0.8%
$0.02
Non-GAAP
60.5% - 61.5%
10.1% - 12.2%
$0.16- $0.20 The total of percentage rate changes may not equal the total change in all cases due to rounding. |
