UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended December 28, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-25711
EXTREME NETWORKS, INC.
(Exact name of Registrant as specified in its charter)
| DELAWARE | 77-0430270 | |
| [State or other jurisdiction of incorporation or organization] |
[I.R.S. Employer Identification No.] |
| 3585 Monroe Street Santa Clara, California |
95051 | |
| [Address of principal executive offices] | [Zip Code] |
Registrant’s telephone number, including area code: (408) 579-2800
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No ¨
The number of shares of the Registrant’s Common Stock, $.001 par value, outstanding at
January 30, 2004 was 118,895,922.
EXTREME NETWORKS, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED DECEMBER 28, 2003
2
Part I. Financial Information
| Item 1. | Financial Statements |
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| December 28, 2003 |
June 29, 2003 |
|||||||
| (Unaudited) | (Note 1) | |||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 59,544 | $ | 44,340 | ||||
| Short-term investments |
104,811 | 119,277 | ||||||
| Accounts receivable, net |
24,388 | 26,794 | ||||||
| Inventories, net |
20,508 | 18,710 | ||||||
| Prepaid expenses and other current assets |
9,852 | 16,878 | ||||||
| Total current assets |
219,103 | 225,999 | ||||||
| Property and equipment, net |
67,193 | 73,767 | ||||||
| Marketable securities |
248,246 | 238,540 | ||||||
| Other assets |
31,092 | 11,951 | ||||||
| TOTAL ASSETS |
$ | 565,634 | $ | 550,257 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 16,406 | $ | 19,020 | ||||
| Accrued compensation and benefits |
14,583 | 14,665 | ||||||
| Restructuring liabilities |
5,686 | 6,812 | ||||||
| Lease commitment |
3,297 | 4,396 | ||||||
| Accrued warranty |
8,739 | 10,200 | ||||||
| Deferred revenue |
50,773 | 48,298 | ||||||
| Other accrued liabilities |
19,305 | 25,317 | ||||||
| Total current liabilities |
118,789 | 128,708 | ||||||
| Restructuring and other long-term liabilities, less current portion |
19,559 | 22,313 | ||||||
| Convertible subordinated notes |
200,000 | 200,000 | ||||||
| Commitments and contingencies (Note 2) |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock and capital in excess of par value |
682,800 | 652,091 | ||||||
| Deferred stock compensation |
(581 | ) | (1,708 | ) | ||||
| Accumulated other comprehensive income |
1,511 | 2,306 | ||||||
| Accumulated deficit |
(456,444 | ) | (453,453 | ) | ||||
| Total stockholders’ equity |
227,286 | 199,236 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 565,634 | $ | 550,257 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
3
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| December 28, 2003 |
December 29, 2002 |
December 28, 2003 |
December 29, 2002 |
|||||||||||||
| Net revenue: |
||||||||||||||||
| Product |
$ | 71,500 | $ | 80,470 | $ | 148,256 | $ | 171,720 | ||||||||
| Service |
11,945 | 9,746 | 22,560 | 19,065 | ||||||||||||
| Total net revenue |
83,445 | 90,216 | 170,816 | 190,785 | ||||||||||||
| Cost of revenue: |
||||||||||||||||
| Product |
34,105 | 40,109 | 67,537 | 88,495 | ||||||||||||
| Service |
8,898 | 9,637 | 17,934 | 18,531 | ||||||||||||
| Total cost of revenue |
43,003 | 49,746 | 85,471 | 107,026 | ||||||||||||
| Gross margin: |
||||||||||||||||
| Product |
37,395 | 40,361 | 80,719 | 83,225 | ||||||||||||
| Service |
3,047 | 109 | 4,626 | 534 | ||||||||||||
| Total gross margin |
40,442 | 40,470 | 85,345 | 83,759 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Sales and marketing |
23,611 | 25,577 | 45,436 | 53,049 | ||||||||||||
| Research and development |
14,569 | 13,418 | 27,866 | 27,927 | ||||||||||||
| General and administrative |
7,860 | 6,729 | 14,891 | 13,664 | ||||||||||||
| Amortization of deferred stock compensation |
181 | 1,039 | 733 | 2,342 | ||||||||||||
| Restructuring charge |
— | 14,187 | 962 | 14,187 | ||||||||||||
| Property and equipment write-off |
— | 12,678 | — | 12,678 | ||||||||||||
| Total operating expenses |
46,221 | 73,628 | 89,888 | 123,847 | ||||||||||||
| Operating loss |
(5,779 | ) | (33,158 | ) | (4,543 | ) | (40,088 | ) | ||||||||
| Other income, net |
63 | 990 | 2,362 | 1,870 | ||||||||||||
| Loss before income taxes |
(5,716 | ) | (32,168 | ) | (2,181 | ) | (38,218 | ) | ||||||||
| Provision (benefit) for income taxes |
(110 | ) | (13,173 | ) | 810 | (15,190 | ) | |||||||||
| Net loss |
$ | (5,606 | ) | $ | (18,995 | ) | $ | (2,991 | ) | $ | (23,028 | ) | ||||
| Net loss per share – basic and diluted |
$ | (0.05 | ) | $ | (0.17 | ) | $ | (0.03 | ) | $ | (0.20 | ) | ||||
| Shares used in per share calculation – basic and diluted |
117,665 | 114,819 | 117,143 | 113,409 | ||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended |
||||||||
| December 28, 2003 |
December 29, 2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (2,991 | ) | $ | (23,028 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation |
10,533 | 14,282 | ||||||
| Provision for doubtful accounts (reversal) |
(200 | ) | — | |||||
| Deferred income taxes |
— | (15,200 | ) | |||||
| Amortization of deferred stock compensation |
733 | 2,342 | ||||||
| Amortization of warrant-related costs |
1,261 | — | ||||||
| Restructuring charge |
962 | 26,865 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
2,606 | 29,615 | ||||||
| Inventories |
(1,798 | ) | (3,412 | ) | ||||
| Prepaid expenses and other current and noncurrent assets |
9,323 | (1,815 | ) | |||||
| Accounts payable |
(2,614 | ) | (6,884 | ) | ||||
| Accrued compensation and benefits |
(82 | ) | (799 | ) | ||||
| Restructuring liabilities |
(4,735 | ) | (3,736 | ) | ||||
| Lease commitment |
(1,099 | ) | (3,544 | ) | ||||
| Accrued warranty |
(1,461 | ) | 1,156 | |||||
| Deferred revenue |
2,475 | 2,721 | ||||||
| Other accrued liabilities |
(5,997 | ) | (4,391 | ) | ||||
| Net cash provided by operating activities |
6,916 | 14,172 | ||||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(4,081 | ) | (11,584 | ) | ||||
| Purchases of investments |
(143,603 | ) | (269,958 | ) | ||||
| Sales and maturities of investments |
147,568 | 228,992 | ||||||
| Net cash used in investing activities |
(116 | |||||||