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Extreme Networks Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 10, 2011 01:02PM
Extreme Networks Inc. (EXTR) filed Quarterly Report for the period ended 2011-10-02. Extreme Networks Inc. has a market cap of $270.7 million; its shares were traded at around $2.94 with a P/E ratio of 36.8 and P/S ratio of 0.8.
Highlight of Business Operations:The level of sales to any one customer may vary from period to period; however, we expect that significant customer concentration will continue for the foreseeable future. Three customers accounted for 13.2%, 11.9%, and 10.1%, respectively, of our revenue in the first quarter of fiscal 2012. Two customers accounted for 13.0% and 13.7% of our revenue in the first quarter of fiscal 2011.
Product gross profit decreased by $4.6 million and product gross margin decreased to 53% from 56% in the three months ended October 2, 2011 compared to the corresponding period of fiscal 2011. These decreases were primarily due to a 9% decrease in product revenue, a product mix comprised of a higher proportion of lower margin products, and the impact of higher manufacturing costs.
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 increased by $1.3 million in the three months ended October 2, 2011 compared to the corresponding period of fiscal 2011, primarily due to a 7% increase in service revenue. Service gross margin improved to 63% from 58% in the first quarter of fiscal 2012 compared to the corresponding quarter of fiscal 2011, primarily attributable to the increase in service revenue, and the impact of lower equipment costs resulting from utilization of certain assets that were previously written off.
Sales and marketing expenses for the three months ended October 2, 2011 decreased by $2.8 million, or 11%, compared to the corresponding period of fiscal 2011. The decrease in sales and marketing expenses was primarily due to a decrease of $0.8 million in employee-related expenses resulting from headcount reduction, a decrease of $0.5 million in commission expense due to the combined impact of lower revenue and headcount reduction, a decrease of $0.4 million in demo equipment, and a combined decrease of $0.7 million in professional services fees, travel and other marketing expenses due to cost-reduction measures.
For the three month ended October 2, 2011, cash flow used in operating activities was $3.9 million, comprised of net income of $1.6 million, plus adjustments for non-cash and other reconciling items to net income of $4.3 million, less cash used by changes in assets and liabilities of $9.8 million. Cash used by changes in assets and liabilities during the three months ended October 2, 2011 primarily consisted of (i) an increase of $1.5 million in inventory, primarily due to build-up of inventory in anticipation of demand for certain wireless products, (ii) a combined decrease of $11.0 million in accounts payable, accrued compensation and other accrued liabilities, primarily due to timing of our payment of these liabilities, as well as the impact of the decrease in revenue, (iii) a decrease of $4.6 million in deferred revenues (net of cost of sales to distributors), primarily due to the decrease in product revenue, and (iv) a decrease of $1.4 million in restructuring liabilities consisting of severance payments (net of $1.0 million of additional severance expenses), partially offset by (v) a decrease of $5.2 million in accounts receivable, primarily attributable to the decrease in product revenue and increased cash collections (vi) a decrease of $4.2 million in prepaid expenses and other assets, of which $2.8 million represents cash receipt in the first quarter of fiscal 2012
Stocks Discussed: EXTR,