Extreme Networks, Inc. (“Extreme”) (Nasdaq: EXTR) today released financial results for its second quarter ended December 31, 2024, highlighting continued market recovery in enterprise networking, ...
Consistent Execution Drives Third Quarter of Sequential Revenue Growth, Powering Earnings Above Guidance
MORRISVILLE, N.C.: Extreme Networks, Inc. (“Extreme”) (Nasdaq: EXTR) today released financial results for its second quarter ended December 31, 2024, highlighting continued market recovery in enterprise networking, and marking Extreme's third consecutive quarter of sequential revenue growth.
"Our competitive win rates continue to improve, especially with larger enterprise customers. Our success is based on the simplicity and feature differentiation of our cloud networking platform and unique enterprise campus fabric solution. Changes in the competitive environment and early traction with our commercial models are creating new growth opportunities for Extreme," said Ed Meyercord, President and Chief Executive Officer.
"In the second quarter, we announced our vision for Extreme Platform ONE™, our innovative technology platform that integrates Extreme's networking and security solutions by collapsing all of our applications into a single interface. We are introducing new AI models at the core of the platform that will drive impactful advances to the networking experience. Platform ONE will deliver significant productivity gains for IT teams in network design, deployment, management and commercial operations, by reducing complex tasks from hours to minutes," concluded Meyercord.
Kevin Rhodes, Executive Vice President and Chief Financial Officer, stated, "The continued sequential revenue growth in the second quarter, coupled with higher operating margin and earnings growth, demonstrates the strong operating leverage in our financial model. We expect better than seasonal revenue for the third quarter, at the midpoint of our outlook, and further improvement in cash flow generation. For FY25, we expect growth in revenue, along with higher operating margins and cash flow generation, based on the ongoing recovery in our business and prudent management of our expenses."
Fiscal Second Quarter Results:
Liquidity:
Recent Key Highlights:
Fiscal Q2 2025 Financial Metrics:
(in millions, except percentages and per share information)
|
| GAAP Results |
| |||||||||
|
| Three Months Ended |
| |||||||||
|
| December 31, |
|
| December 31, |
|
| Change |
| |||
Product |
| $ | 172.3 |
|
| $ | 186.6 |
|
| $ | (14.3 | ) |
Subscription and support |
|
| 107.1 |
|
|
| 109.8 |
|
|
| (2.7 | ) |
Total net revenue |
| $ | 279.4 |
|
| $ | 296.4 |
|
| $ | (17.0 | ) |
Gross margin |
|
| 62.7 | % |
|
| 61.9 | % |
|
| 0.8 | % |
Operating margin |
|
| 4.5 | % |
|
| 3.5 | % |
|
| 1.0 | % |
Net income |
| $ | 7.4 |
|
| $ | 4.0 |
|
| $ | 3.4 |
|
Net income per diluted share |
| $ | 0.06 |
|
| $ | 0.03 |
|
| $ | 0.03 |
|
|
| Non-GAAP Results |
| |||||||||
|
| Three Months Ended |
| |||||||||
|
| December 31, |
|
| December 31, |
|
| Change |
| |||
Product |
| $ | 172.3 |
|
| $ | 186.6 |
|
| $ | (14.3 | ) |
Subscription and support |
|
| 107.1 |
|
|
| 109.8 |
|
|
| (2.7 | ) |
Total net revenue |
| $ | 279.4 |
|
| $ | 296.4 |
|
| $ | (17.0 | ) |
Gross margin |
|
| 63.4 | % |
|
| 62.5 | % |
|
| 0.9 | % |
Operating margin |
|
| 14.7 | % |
|
| 14.8 | % |
|
| (0.1 | )% |
Net income |
| $ | 28.6 |
|
| $ | 31.5 |
|
| $ | (2.9 | ) |
Net income per diluted share |
| $ | 0.21 |
|
| $ | 0.24 |
|
| $ | (0.03 | ) |
Extreme uses the non-GAAP free cash flow metric as a measure of operating performance. Free cash flow represents GAAP net cash provided by (used in) operating activities, less capital expenditures for purchases of property and equipment and capitalized software development costs. 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 and equipment and capitalized software development costs, 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 millions):
Free Cash Flow | Three Months Ended | Six Months Ended |
| ||||||||||||
| December 31, |
|
| December 31, |
|
| December 31, |
|
| December 31, |
| ||||
Cash flow provided by operations | $ | 21.5 |
|
| $ | 34.3 |
|
| $ | 40.1 |
|
| $ | 109.9 |
|
Less: Property and equipment capital expenditures |
| (5.4 | ) |
|
| (5.7 | ) |
|
| (12.3 | ) |
|
| (10.0 | ) |
Total free cash flow | $ | 16.1 |
|
| $ | 28.6 |
|
| $ | 27.8 |
|
| $ | 99.9 |
|
SaaS ARR: Extreme uses SaaS annual recurring revenue (“SaaS ARR”) to identify the annual recurring revenue of ExtremeCloud IQ and other subscription revenue, based on the annualized value of quarterly subscription revenue and term-based licenses. We believe that SaaS ARR is an important metric because it is driven by our ability to acquire new customers and to maintain and expand our relationships with existing customers. SaaS ARR should be viewed independently of revenue or deferred revenue that are accounted for under U.S. GAAP. SaaS ARR does not have a standardized meaning and therefore may not be comparable to similarly titled measures presented by other companies. SaaS ARR is not intended to be a replacement for forecasts of revenue.
Gross Debt: Gross debt is defined as long-term debt and the current portion of long-term debt as shown on the balance sheet plus unamortized debt issuance costs, if any.
Net Cash (Debt) is defined as cash and cash equivalents minus gross debt, as shown in the table below (in millions):
Cash and cash equivalents |
|
| Gross debt |
|
| Net cash (debt) |
| |||
$ | 170.3 |
|
| $ | 185.0 |
|
| $ | (14.7 | ) |
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 third quarter of fiscal 2025, ending March 31, 2025, the Company is targeting:
(in millions, except percentages and per share information) | Low-End |
|
| High-End |
| ||
FQ3'25 Guidance – GAAP |
|
|
|
|
| ||
Total net revenue | $ | 276.0 |
|
| $ | 284.0 |
|
Gross margin |
| 61.2 | % |
|
| 62.2 | % |
Operating margin |
| 0.0 | % |
|
| 2.1 | % |
Earnings (Loss) per share | $ | (0.04 | ) |
| $ | 0.00 |
|
Shares outstanding used in calculating GAAP EPS |
| 133.3 |
|
|
| 134.7 |
|
FQ3'25 Guidance – Non-GAAP |
|
|
|
|
| ||
Total net revenue | $ | 276.0 |
|
| $ | 284.0 |
|
Gross margin |
| 62.0 | % |
|
| 63.0 | % |
Operating margin |
| 12.0 | % |
|
| 13.7 | % |
Earnings per share | $ | 0.16 |
|
| $ | 0.20 |
|
Diluted Shares outstanding used in calculating non-GAAP EPS |
| 134.7 |
|
|
| 134.7 |
|
The following table shows the GAAP to non-GAAP reconciliation for Q3 FY'25 guidance:
|
| FQ3'25 |
| |||
| Gross Margin |
| Operating Margin |
| Earnings (Loss) per Share |
|
GAAP | 61.2% - 62.2% |
| 0.0% - 2.1% |
| ($0.04) - $0.00 |
|
Estimated adjustments for: |
|
|
|
|
|
|
Share-based compensation | 0.6% |
| 7.4% - 7.8% |
| 0.16 |
|
Amortization of product intangibles | 0.2% |
| 0.2% |
| 0.01 |
|
Amortization of non-product intangibles | — |
| 0.2% |
| — |
|
Restructuring and related charges | — |
| 1.0% |
| 0.02 |
|
Litigation charges | — |
| 0.7% |
| 0.01 |
|
System transition cost | — |
| 2.1% |
| 0.04 |
|
Tax adjustment | — |
| — |
| (0.04) |
|
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