Extreme Networks Inc. Reports Operating Results (10-Q)
Extreme Netwrks has a market cap of $335 million; its shares were traded at around $3.68 with a P/E ratio of 24.6 and P/S ratio of 1.1. Hedge Fund Gurus that owns EXTR: George Soros of Soros Fund Management LLC, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors.
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 second quarter of fiscal 2011, our revenues increased $5.7 million, gross profit increased $2.2 million, operating profit increased $11.1 million and net income increased $10.3 million as compared to the second quarter of fiscal 2010.
In the first six months of fiscal 2011, our revenues increased $23.3 million, gross profit increased $12.3 million, operating profit increased $18.8 million and net income increased $18.5 million as compared to the first six months of fiscal 2010.
During January 2011, we commenced a strategy to focus on growing revenue in specific market verticals and on improving operational effectiveness. As part of the strategy, we reduced headcount by up to 35 or 5% of our employees, discontinued a product line by ceasing all sales, marketing, research and development activities, and terminated our relationship with the product line contract manufacturer. We expect to take a charge between $5.0 million to $7.0 million in the third quarter of fiscal 2011, almost all of which will be cash severance, write-down of inventory and exit costs related to the contract manufacturer.
During the second quarter of fiscal 2010, we restructured the organization, including restructuring from a business unit organization to a functional organization. In connection with the restructuring, we had a reduction in force (“RIF”) and terminated 8% of our workforce. Total termination benefits were $3.6 million. In addition, we eliminated redundant engineering projects in conjunction with the reorganization. We incurred $0.5 million related to the discontinued engineering projects.
On October 20, 2010, we settled a lawsuit related to certain real property leases entered into in June 2000. Total settlement award was $5.0 million, of which $3.8 million was paid in the second quarter of fiscal 2011 and the remaining $1.2 million will be paid over the next ten months.
On December 31, 2010, we entered into a Memorandum of Understanding ("MOU”) with the lead plaintiff on behalf of all plaintiffs in the consolidated shareholder derivative actions entitled In re Extreme Networks, Inc., Shareholder Derivative Litigation. As part of the MOU and if the settlement is ultimately accepted by the Court, we have agreed to pay the plaintiff's counsel for their service in the action in the amount of $3.5 million, of which $2.7 million will be reimbursed to us by our directors and officer insurer. We recorded a $3.5 million payable and $2.7 million receivable on the balance sheet as of December 26, 2010. In addition, we recorded a net expense of $0.8 million in the Condensed Consolidated Statement of Operations for the three and six months-ended December 26, 2010 under Litigation Settlement.
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