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Extreme Networks Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 3, 2010 05:33PM
Extreme Networks Inc. (EXTR) filed Quarterly Report for the period ended 2010-09-26.
Highlight of Business Operations:
We develop and sell network infrastructure equipment and offer related services to our enterprise, data center and telecommunications service provider customers. Substantially all of our revenue is derived from the sale of our networking equipment and related service contracts. In the first quarter of fiscal 2011, our revenues increased $17.5 million, gross profit increased $10.1 million, operating profit increased $7.7 million and net income increased $8.2 million as compared to the first quarter of fiscal 2010.
Our cost of service revenue consists primarily of labor, overhead, repair and freight costs and the cost of spares used in providing support under customer service contracts. Service gross profit in the first quarter of fiscal 2011 decreased as compared to the first quarter of fiscal 2010 primarily due to $0.9 million due to lower product revenue in EMEA and lower installed base needing service and services and higher return material authorization cost of $0.5 million. In addition, service gross margin of 62.5% in the first quarter of fiscal 2010 was positively impacted by the use of written down inventory of $0.9 million which was fully depleted in the first quarter of fiscal 2010. Service margin of 57.8% in the first quarter of fiscal 2011 is within the normalized range of 57% to 58%.
Sales and marketing expenses consist of salaries, commissions and related expenses for personnel engaged in marketing and sales functions, as well as trade shows and promotional expenses. Sales and marketing expenses increased in the first quarter of fiscal 2011 as compared to the first quarter of fiscal 2010 primarily due to $1.3 million higher salary and benefits due to higher headcount, $0.9 million increase in commission due to increased revenue, $0.7 million increase in travel and $0.2 million higher in share-based compensation.
Research and development expenses consist primarily of salaries and related personnel expenses, consultant fees and prototype expenses related to the design, development, and testing of our products. Research and development expenses decreased in the first quarter of fiscal 2011 as compared to the first quarter of fiscal 2010 primarily due to lower salary and benefits expense of $1.3 million due to lower headcount, $0.3 million reduction in outside services offset by $0.8 million increase in engineering project expenses. We expense all research and development expenses as incurred.
General and administrative expenses decreased in the first quarter of fiscal 2011 as compared to the first quarter of fiscal 2010 primarily due to lower litigation fees of $0.5 million and lower salary and benefits expense of $0.4 million due to lower headcount offset by increased share-based compensation of $0.3 million.
Other income (expense) net, was expense of $0.3 million in the first fiscal quarter of 2011 as compared to expense of $0.1 million in the first quarter of fiscal 2010, an increase in expense of $0.2 million. The increase in other expense was primarily due to $0.2 million fluctuation in foreign exchange losses from $0.1 million loss in the first quarter of fiscal 2010 to $0.3 million loss in the first quarter of fiscal 2011 as a result of the weakening U.S. dollar as compared to other foreign currencies.
Stocks Discussed: EXTR,