Extreme Networks Reports Q2 in Line With Previous Guidance

SANTA CLARA, Calif., Jan. 31, 2011 /PRNewswire/ -- Extreme Networks, Inc. (Nasdaq: EXTR) today announced financial results for its 2011 fiscal second quarter ended December 26, 2010.  For the quarter, total net revenue increased seven percent to $85.1 million, as compared to $79.4 million in the second quarter last year.  Previously issued guidance to investors was for net revenue of $85-$88 million.

“Both EMEA and APAC posted solid performance, again this quarter,” said Oscar Rodriguez, President & CEO of Extreme Networks.  “Product revenue in North America increased about 8 percent over Q2 last year, but did not improve from Q1 as we had expected.  We have just appointed a new vice president of NA Sales and have reorganized North America to provide improved customer focus.”

Rodriguez continued, “We have completed a review of our Company strategy.  While we will continue to serve the broader Enterprise Campus, Data Center and Service Provider markets, we will specifically focus our efforts and resources on identified high-growth verticals within those broader markets.  As a result, we believe this will enable us to grow revenue in high-growth vertical markets.  Further, aimed at continuing to improve financial performance, during mid January, we took actions to reduce headcount by approximately 35 employees or roughly 5% of worldwide headcount.  This action will result in a restructuring charge in Q3 between $1.0 million to $1.5 million.  Additionally, we have initiated cost reduction programs aimed at driving additional efficiencies throughout the Company.  We believe these actions are targeted to expand gross margins and accelerate our ability to reach our stated target of double-digit operating income.  Going forward, we believe these actions will lower our operating expense by up to $2 million per quarter and $8 million annually.”

Second quarter non-GAAP operating income was $5.3 million or 6.2% percent of net revenue, representing a significant improvement as compared to operating income of $4.2 million or 5.3% of net revenue in the second quarter last year.  Non-GAAP operating income in the 2011 fiscal first quarter was $4.6 million or 5.5 percent of net revenue.

In the second quarter the Company reported non-GAAP net income of $5.1 million or $0.06 per diluted share.  That compares to a non-GAAP net income of $4.8 million or $0.05 per diluted share in the second quarter last year, and to non-GAAP net income of $4.8 million or $0.05 per diluted share in the 2011 fiscal first quarter.  Non-GAAP financial results exclude the impact of stock-based compensation, restructuring charges and litigation settlements.  A reconciliation of GAAP to non-GAAP financial measures is included in the accompanying financial tables.

Operating income on a GAAP basis was $9.1 million for the quarter, representing a significant improvement as compared to an operating loss of $2.0 million for the second quarter of last year. The second quarter this year benefited from the net favorable impact of $4.2 million in litigation settlements.  In the second quarter last year, operating income included a restructuring charge of $4.1 million.  Reported operating income was $2.5 million in the 2011 fiscal first quarter.

Net income on a GAAP basis for quarter was $8.9 million or $0.10 per diluted share, including the net favorable impact of $4.2 in litigation settlements.  That compares to a net loss of $1.4 million or $0.02 loss per diluted share in the second quarter last year, including the impact of the restructuring charge of $4.1 million.  In the 2011 fiscal first quarter, net income on a GAAP basis was $2.7 million or $0.03 per diluted share.

For the quarter, total net revenue in North America was $28.0 million, revenue in EMEA was $40.0 million, and revenue in APAC was $17.1 million.  That compares to revenue of $27.5 million in North America, $37.8 million in EMEA, and $14.1 million in APAC a year-ago.

Total cash and investments increased $6.0 million from the first quarter to $141.7 million and the Company has no long-term debt.  Cash and investments were favorably impacted by the collection of $3.8 million cash related to the settlement on property litigation and positive cash flow from operations.

2011 Fiscal Third Quarter non-GAAP Financial Guidance

For its 2011 fiscal third quarter ending March 27, 2011, the Company currently expects net revenue to be in a range of $82-$85 million and non-GAAP net income, before a charge related to the realignment of our strategy, of $0.05 to $0.08 per diluted share.  In conjunction with the realignment of our strategy we anticipate to write-off assets between $4.0 million to $4.5 million or $0.04 to $0.05 per diluted share.

Conference Call and Slide Presentation

Extreme Networks will host a conference call to discuss these results today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time).  The conference call may be heard by dialing 1-877-303-9826 (international callers dial 1-224-357-2194).  A 7-day replay will be available following the call by dialing 1-800-642-1687 (international callers dial 1-706-645-9291).  The conference call passcode is 35088115.  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 in 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/(loss), non-GAAP operating income/(loss) and non-GAAP earnings/(loss) per diluted share.  In preparing our non-GAAP information, we have excluded, where applicable, the impact of restructuring charges, share-based compensation and litigation settlements.  We believe that excluding these items 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 items 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 Condensed Consolidated Statement of Operations for the periods presented in this release, which are adjusted to exclude restructuring charges, share-based compensation expense and litigation settlements 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 network infrastructures that support data, voice and video for enterprises and service providers. The company's network solutions feature high performance, high availability and scalable switching solutions that enable organizations to address real-world communications challenges and opportunities. 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, including our guidance regarding future results, that involve risks and uncertainties, including statements regarding the Company’s expectations regarding financial performance and product introduction.  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; the Company’s 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.”

SOURCE Extreme Networks, Inc.

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