Extreme Networks Reports Fourth Quarter and Fiscal Year 2023 Financial Results

Extreme Networks, Inc. (“Extreme”) (Nasdaq: EXTR) today released financial results for its fiscal year and fourth quarter ended June 30, 2023.

"Extreme delivered a year of exceptional performance, with revenue growth accelerating to 31% in the fourth quarter and 18% overall for the year," said Ed Meyercord, President and Chief Executive Officer. "This marks our second consecutive year of double-digit growth. We're outgrowing our competitors, gaining share, and winning new logos, which helped drive more than 30% growth in the value of deals over $1 million. We're breaking the status quo of networking through product innovation with differentiated solutions like universal hardware, end-to-end cloud management, enhanced AI, and our unique fabric technology, which greatly simplifies network management and bolsters security. Our focus on simplicity, flexibility, and performance continues to fuel our funnel of large opportunities. I remain confident in our growth prospects and am excited about the new innovations and opportunities we have in store for FY24 and beyond," concluded Meyercord.

Kevin Rhodes, Executive Vice President and Chief Financial Officer stated, "the strong topline growth we achieved in Q4 and FY23 resulted in significant operating leverage that drove over 76% growth in GAAP EPS. We doubled our cash generation to $235 million in free cash flow this year, and even after repurchasing another $100 million worth of shares, and paying down $80 million in debt, we improved our year-end balance sheet to achieve a net cash position. Extreme has never been in a more robust financial position, and I am encouraged about our future prospects."

Fiscal Fourth Quarter Results:

• Revenue $363.9 million, up 31% year-over-year, and up 9% quarter-over-quarter
• SaaS ARR $129.0 million, up 25% year-over-year, and up 10% quarter-over-quarter
• GAAP diluted EPS $0.19, compared to $0.04 in the prior year quarter
• Non-GAAP diluted EPS $0.33, compared to $0.15 in the prior year quarter
• GAAP gross margin 58.9% compared to 55.4% in the prior year quarter
• Non-GAAP gross margin 60.2% compared to 57.0% in the prior year quarter
• GAAP operating margin 10.4 % compared to 3.8 % in the prior year quarter
• Non-GAAP operating margin 17.4 % compared to 9.6% in the prior year quarter

Fiscal Year 2023 Results:

• Revenue $1.3 billion, up 18% compared to $1.1 billion in fiscal 2022
• GAAP EPS $0.58, up from $0.33 in fiscal 2022
• Non-GAAP EPS $1.09, up from $0.77 in fiscal 2022
• GAAP operating margin 8.3% compared to 5.8% in fiscal 2022
• Non-GAAP operating margin 15.2% compared to 12.2% in fiscal 2022

Liquidity:

• During Q4, we generated net cash flow from operations of $80.7 million and free cash flow of $75.5 million. For the full year, we generated net cash flow from operations of $249.2 million and free cash flow of $235.4 million.
• During Q4, we repurchased 1.4 million shares of our common stock on the open market at a total cost of $25.1 million with a weighted average price of $17.32 per share. For the full year, we repurchased 5.4 million shares for $100 million with a weighted average price of $18.58 per share.
• Year ending cash balance was $234.8 million, an increase of $31.8 million from the end of Q3 2023 and $40.3 million at the end of last year.
• Year ending net cash was $9.8 million, an increase of $43.8 million from net debt of $34.0 million at Q3 2023 and an increase of $123.9 million from net debt of $114.1 million at the end of last year.

Recent Key Highlights:

• Customers including Norwegian Cruise Line, European energy company E.ON and French university hospital Charité were named as recipients of the 2023 Extreme X-Factor Customer Awards. They were recognized for their innovative and impactful use of Extreme solutions to help drive their organizations forward.
• During Extreme Connect 2023 in May, the company unveiled a series of groundbreaking networking solutions, including:
  • ExtremeCloud Edge, the industry’s first networking cloud continuum, which offers organizations increased choice and flexibility in running networking applications, including management, analytics, and AI, from any location.
  • The AP3000, the industry's smallest and most energy-efficient Wi-Fi 6E access point (AP)
  • The 7520 and 7720 switches for enterprise core and aggregation use cases and the 8820 switches for large data center networks.
• Customers like Nevada Department of Transportation and Baylor University are adopting Extreme CoPilot AIOps to offset IT staffing shortages, reduce mean time to resolution of network issues and help IT and network administrators access and leverage network insights to prioritize tickets. As a result, teams can improve service quality, expedite problem resolution, help mitigate cyberthreats and improve time to innovation.
• Living Tomorrow Innovation Campus in Brussels selected Extreme as its network connectivity partner and will leverage hundreds of AP4000 Wi-Fi 6E access points (APs) to test and demonstrate advanced technologies. The campus will also rely on ExtremeAnalytics and ExtremeCloud IQ to optimize connectivity, enhance guest experiences, improve security and IT productivity, and automate daily network maintenance tasks while detecting anomalies in network activity.
• The University of Mount Union refreshed its network with end-to-end wired and wireless solutions from Extreme, including Fabric and ExtremeCloud IQ CoPilot for AIOps. The new network provides seamless, AI and Fabric powered automation and optimization across campus, which improves IT productivity and greatly reduces mean time to resolving network anomalies. Extreme improves the performance of in-classroom technology like AR/VR and 4K video streaming.
• Professional sports teams including the Arizona Diamondbacks, Philadelphia Phillies and Philadelphia Flyers are deploying Wi-Fi 6 and 6E to help create better fan experiences, improve amenities like digital concession signage and mobile tickets, ensure support for future fan experiences like AR/VR and AI applications and streamline venue operations.

Fiscal Q4 2023 and Full Year 2023 Financial Metrics:

(in millions, except percentages and per share information)

Extreme uses the non-GAAP free cash flow metric as a measure of operating performance. Free cash flow represents GAAP net cash provided by operating activities, less purchases of property, plant and equipment. 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, plant and equipment, 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):

SaaS ARR: Extreme uses SaaS annual recurring revenue (“SaaS ARR”) to identify the annual recurring revenue of ExtremeCloud™ IQ (XIQ) 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 accounted 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 minus gross debt, as shown in the table below (in millions):

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 first quarter of fiscal 2024, ending September 30, 2023, the Company is targeting:

The following table shows the GAAP to non-GAAP reconciliation for Q1 FY’24 guidance: