Extreme Networks Reports Financial Results

Revenue in Line with Preliminary Release

• Press Release
• Source: Extreme Networks, Inc.
• On 4:02 pm EDT, Monday October 26, 2009

SANTA CLARA, Calif., Oct. 26 /PRNewswire-FirstCall/ -- Extreme Networks, Inc. (Nasdaq: EXTR - News) today announced financial results for its 2010 fiscal first quarter ended September 27, 2009. The Company will host a conference call to discuss these results and its growth initiatives today at 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time).

"Last week we completed a reorganization to streamline operations, simplify the organization and reduce recurring costs. The effect of this action was to lower our quarterly breakeven to less than $70 million in revenue and reduce quarterly operating expenses by approximately $2.5 million. The reorganization consolidated the Business Units into a simple functional organization with centralized Marketing and Engineering. We believe this will create significant efficiencies and accelerate decision-making," said Bob L. Corey, CFO and acting President & CEO of Extreme Networks. "As previously announced, our supply chain was constrained during Q1 impacting our ability to deliver product. We are disappointed with our performance in Q1 and are actively improving availability from our Supply Chain to meet Customer demand for our products in Q2. We remain committed to our products, markets, channels and customers."

For the quarter, net revenue was $66.3 million, compared to $89.5 million in the fiscal first quarter of 2009. Non-GAAP net loss was $4.9 million or a loss of $0.05 per diluted share, compared to non-GAAP net income of $2.0 million or $0.02 per diluted share in the year-ago quarter. Non-GAAP financial results exclude the impact of stock-based compensation and restructuring charges. A reconciliation of GAAP to non-GAAP financial measures is included in the accompanying financial tables.

For the first quarter, net revenue in North America was $26.9 million, revenue in EMEA was $28.1 million, and revenue in APAC was $11.4 million. That compares to revenue of $35.7 million in North America, $41.6 million in EMEA, and $12.2 million in APAC in the year-ago fiscal first quarter.

Net loss on a GAAP basis for the first quarter was $5.5 million or $0.06 per diluted share, compared to net income of $1.6 million or $0.01 per diluted share in the year-ago fiscal first quarter.

Conference Call

Extreme Networks will host a conference call to discuss these results today at 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time). The conference call may be heard by dialing 1-877-941-1427 (international callers dial 1-480-629-9664). A 48-hour replay will be available following the call by dialing 1-800-406-7325 (international callers dial 1-303-590-3030); the replay passcode is 4166330. In addition, a live webcast and replay of the call will be available at http://investor.extremenetworks.com. Financial information to be discussed during the conference call will be posted on the Investor Relations section of the Company's website www.extremenetworks.com.

Non-GAAP Financial Measures

Extreme Networks provides all financial information required in accordance with generally accepted accounting principles (GAAP). To supplement our consolidated financial statements presented in accordance with GAAP, we are also providing with this press release non-GAAP net income. In preparing our non-GAAP information, we have excluded, where applicable, the impact of restructuring charges (a non-recurring charge) and share-based compensation (a non-cash charge). Because of the non-recurring and/or non-cash nature of these charges, we believe that excluding them provides both management and investors with additional insight into our current operations, the trends affecting the Company and the Company's marketplace performance. In particular, management finds it useful to exclude these charges 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 our historical performance and in planning our future business activities. Please note that our non-GAAP measures may be different than those used by other companies. The additional non-GAAP financial information we present should be considered in conjunction with, and not as a substitute for, our financial information presented in accordance with GAAP. We have provided a non-GAAP reconciliation of the Consolidated Statement of Operations for the periods presented in this release, which are adjusted to exclude restructuring charges and share-based compensation expense 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.

Extreme Networks, Inc.

Extreme Networks provides converged Ethernet networks that support data, voice and video for enterprises and service providers. The company's network solutions feature high performance and high availability switching that deliver insight and control enabling customers to solve their real-world business communications challenges. Operating in more than 50 countries, Extreme Networks provides wired and wireless secure LANs, data center infrastructure and Service Provider Ethernet transport solutions that are complemented by global, 24x7 service and support. For more information, visit: http://www.extremenetworks.com

Extreme Networks is either a trademark or registered trademark of Extreme Networks, Inc. in the United States and/or other countries.

This announcement contains forward-looking statements that involve risks and uncertainties, including statements regarding the Company's financial performance, acceptance of the Company's newer products in the market and its expectations regarding its products. 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: a challenging macro-economic environment both in the United States and overseas; fluctuations in demand for the Company's products and services; a highly competitive business environment for network switching equipment; its effectiveness in controlling expenses, the possibility that the Company might experience delays in the development of new technology and products; customer response to its new technology and products; the timing of any recovery in the global economy; risks related to pending or future litigation, and a dependency on third parties for certain components and for the manufacturing of the Company's products. The Company undertakes no obligation to update the forward-looking information in this release. 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."

                              EXTREME NETWORKS, INC.
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                (In thousands, except share and per share amounts)

                                                        September 27, June 28,
                                                           2009         2009
                                                           ----         ----
                                                        (unaudited)      (1)

            ASSETS
    Current assets:
      Cash and cash equivalents                            $39,261    $46,195
      Short-term investments                                57,274      8,976
      Accounts receivable, net                              42,036     44,278
      Inventories, net                                      16,151     12,380
      Deferred income taxes                                    247        244
      Prepaid expenses and other current assets, net         4,047      4,368
                                                             -----      -----
        Total current assets                               159,016    116,441
    Property and equipment, net                             43,810     44,229
    Marketable securities                                   34,126     72,231
    Other assets, net                                       16,514     13,736
                                                            ------     ------
        Total assets                                      $253,466   $246,637
                                                          ========   ========

             LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
      Accounts payable                                     $16,579    $12,771
      Accrued compensation and benefits                     11,994     12,320
      Restructuring liabilities                              2,763      3,559
      Accrued warranty                                       3,419      3,170
      Deferred revenue, net                                 30,216     30,058
      Deferred revenue, net of cost
       of sales to distributors                             12,364      9,821
      Other accrued liabilities                             26,985     21,328
                                                            ------     ------
        Total current liabilities                          104,320     93,027

    Restructuring liabilities, less current portion          2,463      3,519
    Deferred revenue, less current portion                   7,025      7,425
    Deferred income taxes                                      586        564
    Other long-term liabilities                                710        592

    Commitments and contingencies                                -          -

    Stockholders' equity:
      Convertible preferred stock, $.001 par value,
       issuable in series, 2,000,000 shares
       authorized; none issued                                   -          -
      Common stock, $.001 par value,
       750,000,000 shares authorized;
       128,584,923 issued at September 27, 2009
       and 128,425,140 at June 28, 2009                        129        128
      Treasury stock, 39,625,305 issued at
       September 27, 2009 and June 28, 2009               (149,666)  (149,666)
      Additional paid-in-capital                           950,474    949,113
      Accumulated other comprehensive income                 2,294      1,323
      Accumulated deficit                                 (664,869)  (659,388)
                                                          --------   --------
        Total stockholders' equity                         138,362    141,510
                                                           -------    -------
        Total liabilities and stockholders' equity        $253,466   $246,637
                                                          ========   ========

    (1) The information in this column is derived from the Company's
        consolidated balance sheet included in the Company's Annual
        Report on Form 10-K for the year ended June 28, 2009.



                           EXTREME NETWORKS, INC.
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (In thousands, except per share amounts)
                                (unaudited)



                                                 Three Months Ended
                                                 ------------------
                                              September 27,  September 28,
                                                   2009           2008
                                                   ----           ----
    Net revenues:
      Product                                   $50,759        $74,349
      Service                                    15,550         15,177
                                                 ------         ------
        Total net revenues                       66,309         89,526
                                                 ------         ------

    Cost of revenues:
      Product (1)                                23,718         30,133
      Service (1)                                 5,821          7,961
                                                  -----          -----
        Total cost of revenues                   29,539         38,094
                                                 ------         ------

    Gross profit:
      Product                                    27,041         44,216
      Service                                     9,729          7,216
                                                  -----          -----
        Total gross profit                       36,770         51,432
                                                 ------         ------

    Operating expenses:
      Sales and marketing (1)                    21,602         25,857
      Research and development (1)               13,610         16,605
      General and administrative (1)              7,241          8,439
      Restructuring, net                           (513)             -
                                                   ----            ---
        Total operating expenses                 41,940         50,901
                                                 ------         ------

    Operating (loss) income                      (5,170)           531
    Interest income                                 322          1,423
    Interest expense                                (39)           (50)
    Other income / (expense), net                  (159)           548
                                                   ----            ---
    (Loss) income before income taxes            (5,046)         2,452
    Provision for income taxes                      436            813
                                                    ---            ---

                                                -------         ------
    Net (loss) income                           $(5,482)        $1,639
                                                =======         ======

    Basic and diluted net income (loss)
     per share:
    Net (loss) income per share - basic          $(0.06)         $0.01
    Net (loss) income per share - diluted        $(0.06)         $0.01
    Shares used in per share calculation
     - basic                                     88,843        111,323
    Shares used in per share calculation
     - diluted                                   88,843        111,488

    (1) Includes share-based compensation expense as follows:

      Cost of product revenue                       $72           $(40)
      Cost of service revenue                        75             32
      Sales and marketing                           296            175
      Research and development                      375            151
      General and administrative                    322             94
                                                    ---            ---
        Total stock-based compensation
         expense                                  1,140            412
        Capitalized in inventory                     (4)           (26)
                                                    ---            ---
        Total stock-based compensation
         expense, net                            $1,136           $386
                                                 ======           ====



                           EXTREME NETWORKS, INC.
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (In thousands)
                                (unaudited)


                                                 Three Months Ended
                                                 ------------------
                                             September 27,  September 28,
                                                   2009           2008
                                                   ----           ----
    Cash flows from operating activities:
      Net (loss) income                         $(5,482)        $1,639
      Adjustments to reconcile net
       (loss) income to net cash
       provided by operating activities:
         Depreciation and amortization            1,647          1,657
         Gain on value of UBS option to put
          securities                                (14)             -
         Auction rate securities mark to
          market, trading loss                       14              -
         Provision for excess and obsolete
          inventory                                 785             98
         Deferred income taxes                       18             15
         Loss on retirement of assets                 -             94
         Stock-based compensation                 1,140            412
         Restructuring, net                        (513)             -
         Changes in operating assets
          and liabilities, net
           Accounts receivable                    2,242         11,134
           Inventories                           (4,559)        (2,520)
           Prepaid expenses and other assets     (2,457)         1,262
           Accounts payable                       3,808          7,433
           Accrued compensation and benefits       (325)        (4,087)
           Restructuring liabilities             (1,339)          (664)
           Accrued warranty                         250           (483)
           Deferred revenue, net                   (243)         2,532
           Deferred revenue, net of cost of
            sales to distributors                 2,543          5,698
           Other accrued liabilities              6,495         (3,642)
           Other long-term liabilities              119              -
                                                    ---            ---
      Net cash provided by operating
       activities                                 4,129         20,578
                                                  -----         ------

    Cash flows (used in) provided by
     investing activities:
      Capital expenditures                       (1,227)        (2,515)
      Purchases of investments                  (13,697)             -
      Proceeds from maturities of
       investments and marketable securities      2,550         20,000
      Proceeds from sales of investments
       and marketable securities                  1,086         37,102
                                                  -----         ------
      Net cash (used in) provided by
       investing activities                     (11,288)        54,587
                                                -------         ------

    Cash flows provided by (used in)
     financing activities:
      Proceeds from issuance of common stock        225          1,355
      Repurchase of common stock,
       including expenses                             -       (101,431)
                                                    ---       --------
      Net cash provided by (used in)
       financing activities                         225       (100,076)
                                                    ---       --------
      Net decrease in cash and cash
       equivalents                               (6,934)       (24,911)
                                                 ------        -------
    Cash and cash equivalents at
     beginning of period                         46,195         70,370
                                                 ------         ------
    Cash and cash equivalents at end of
     period                                     $39,261        $45,459
                                                =======        =======



                        EXTREME NETWORKS, INC.
                    GAAP TO NON-GAAP RECONCILIATION
                            (In thousands)
                              (unaudited)


                                            Three Months Ended
                                            ------------------
                                         September 27,  September 28,
                                              2009           2008
                                              ----           ----

    NET (LOSS) INCOME
    Net (loss) income - GAAP Basis         $(5,482)        $1,639
                                           =======         ======

    Non-GAAP adjustments
    Stock-based compensation expense        $1,140           $412
    Restructuring reversal, net of charge     (513)             -
                                              ----            ---
    Total Non-GAAP adjustments                $627           $412
                                              ----           ----

                                           -------         ------
    Net (loss) income - Non-GAAP Basis     $(4,854)        $2,051
                                           =======         ======



    NON-GAAP ADJUSTMENTS
      Cost of product revenue                  $72           $(40)
      Cost of service revenue                   75             32
      Sales and marketing                      296            175
      Research and development                 375            151
      General and administrative               322             94
      Restructuring reversal, net of charge   (513)             -
                                              ----            ---
      Total Non-GAAP adjustments              $627           $412
                                              ====           ====

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