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 March 27, 2005
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
May 3, 2005 was 121,858,503.
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 27, 2005
INDEX
| PAGE | ||||
| Item 1. |
||||
| Condensed Consolidated Balance Sheets March 27, 2005 and June 27, 2004 |
3 | |||
| 4 | ||||
| Condensed Consolidated Statements of Cash Flows Nine Months Ended March 27, 2005 and March 28, 2004 |
5 | |||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial |
14 | ||
| Item 3. |
35 | |||
| Item 4. |
36 | |||
| Item 1. |
36 | |||
| Item 6. |
37 | |||
| 38 | ||||
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| March 27, 2005 |
June 27, 2004 |
|||||||
| (Unaudited) | (Note 1) | |||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 65,542 | $ | 59,164 | ||||
| Short-term investments |
140,725 | 162,078 | ||||||
| Accounts receivable, net |
31,575 | 32,998 | ||||||
| Inventories |
22,104 | 25,889 | ||||||
| Prepaid expenses and other current assets |
17,383 | 8,051 | ||||||
| Total current assets |
277,329 | 288,180 | ||||||
| Property and equipment, net |
51,760 | 59,767 | ||||||
| Marketable securities |
237,057 | 204,430 | ||||||
| Other assets |
22,640 | 26,896 | ||||||
| TOTAL ASSETS |
$ | 588,786 | $ | 579,273 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 22,040 | $ | 18,995 | ||||
| Accrued compensation and benefits |
17,017 | 15,827 | ||||||
| Restructuring liabilities |
6,139 | 6,085 | ||||||
| Lease liability |
942 | 2,355 | ||||||
| Accrued warranty |
7,873 | 8,297 | ||||||
| Deferred revenue |
48,840 | 53,674 | ||||||
| Other accrued liabilities |
24,678 | 22,921 | ||||||
| Total current liabilities |
127,529 | 128,154 | ||||||
| Restructuring liabilities, less current portion |
15,459 | 20,478 | ||||||
| Deferred income taxes |
777 | 762 | ||||||
| Long-term deposit |
59 | 321 | ||||||
| Convertible subordinated notes |
200,000 | 200,000 | ||||||
| Commitments and contingencies (Note 2 and 7) |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock and capital in excess of par value |
691,479 | 687,216 | ||||||
| Deferred stock-based compensation |
— | (69 | ) | |||||
| Accumulated other comprehensive loss |
(4,135 | ) | (2,388 | ) | ||||
| Accumulated deficit |
(442,382 | ) | (455,201 | ) | ||||
| Total stockholders’ equity |
244,962 | 229,558 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 588,786 | $ | 579,273 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended |
Nine Months Ended |
||||||||||||||
| March 27, 2005 |
March 28, 2004 |
March 27, 2005 |
March 28, 2004 |
||||||||||||
| Net revenues: |
|||||||||||||||
| Product |
$ | 76,835 | $ | 76,059 | $ | 243,770 | $ | 224,315 | |||||||
| Service |
15,073 | 12,815 | 43,525 | 35,375 | |||||||||||
| Total net revenues |
91,908 | 88,874 | 287,295 | 259,690 | |||||||||||
| Cost of revenues: |
|||||||||||||||
| Product |
35,692 | 34,422 | 109,951 | 101,959 | |||||||||||
| Service |
8,954 | 8,979 | 25,568 | 26,913 | |||||||||||
| Total cost of revenues |
44,646 | 43,401 | 135,519 | 128,872 | |||||||||||
| Gross margin: |
|||||||||||||||
| Product |
41,143 | 41,637 | 133,819 | 122,356 | |||||||||||
| Service |
6,119 | 3,836 | 17,957 | 8,462 | |||||||||||
| Total gross margin |
47,262 | 45,473 | 151,776 | 130,818 | |||||||||||
| Operating expenses: |
|||||||||||||||
| Sales and marketing |
23,946 | 23,343 | 70,941 | 68,779 | |||||||||||
| Research and development |
15,329 | 15,001 | 45,586 | 42,867 | |||||||||||
| General and administrative |
7,254 | 8,043 | 21,918 | 22,934 | |||||||||||
| Amortization of deferred stock compensation |
2 | 198 | 69 | 931 | |||||||||||
| Restructuring charge |
— | — | — | 962 | |||||||||||
| Technology agreement |
2,000 | — | 2,000 | — | |||||||||||
| Total operating expenses |
48,531 | 46,585 | 140,514 | 136,473 | |||||||||||
| Operating income (loss) |
(1,269 | ) | (1,112 | ) | 11,262 | (5,655 | ) | ||||||||
| Other income, net |
829 | 345 | 4,582 | 2,707 | |||||||||||
| Income (loss) before income taxes |
(440 | ) | (767 | ) | 15,844 | (2,948 | ) | ||||||||
| Provision for income taxes |
817 | 339 | 3,025 | 1,149 | |||||||||||
| Net income (loss) |
$ | (1,257 | ) | $ | (1,106 | ) | $ | 12,819 | $ | (4,097 | ) | ||||
| Net income (loss) per share – basic |
$ | (0.01 | ) | $ | (0.01 | ) | $ | 0.11 | $ | (0.03 | ) | ||||
| Net income (loss) per share –diluted |
$ | (0.01 | ) | $ | (0.01 | ) | $ | 0.10 | $ | (0.03 | ) | ||||
| Shares used in per share calculation - basic |
121,444 | 118,832 | 121,041 | 117,706 | |||||||||||
| Shares used in per share calculation - diluted |
121,444 | 118,832 | 124,211 | 117,706 | |||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended |
||||||||
| March 27, 2005 |
March 28, 2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 12,819 | $ | (4,097 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation |
12,605 | 15,550 | ||||||
| Provision for doubtful accounts (reversal) |
— | (200 | ) | |||||
| Provision for excess and obsolete inventory |
795 | — | ||||||
| Deferred income taxes |
15 | — | ||||||
| Amortization of deferred stock-based compensation |
69 | 931 | ||||||
| Amortization of warrant-related costs |
5,675 | 3,153 | ||||||
| Restructuring charge |
— | 962 | ||||||
| Loss on disposal of property and equipment |
50 | — | ||||||
| Net changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
1,422 | (3,754 | ) | |||||
| Inventories |
2,990 | (5,516 | ) | |||||
| Prepaid expenses and other current and noncurrent assets |
(10,751 | ) | 5,388 | |||||
| Accounts payable |
3,045 | 3,540 | ||||||
| Accrued compensation and benefits |
1,190 | (307 | ) | |||||
| Restructuring liabilities |
(4,965 | ) | (6,425 | ) | ||||
| Lease liability |
(1,413 | ) | (1,570 | ) | ||||
| Accrued warranty |
(424 | ) | (1,264 | ) | ||||
| Deferred revenue |
(4,834 | ) | 6,395 | |||||
| Other accrued liabilities |
1,809 | (2,722 | ) | |||||
| Net cash provided by operating activities |
20,097 | 10,064 | ||||||
| Cash flows from investing activities: |
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