Extreme Networks Reports Fourth Quarter Financial Results

Annual Revenue up 6% with Improved Gross Margins

SANTA CLARA, Calif., July 31 /PRNewswire-FirstCall/ -- Extreme Networks,
Inc. (Nasdaq: EXTR) today announced financial results for its fiscal fourth
quarter and year ended June 29, 2008. For the quarter, net revenue was
$98.3 million, compared to $87.1 million in the year-ago quarter, a 13%
increase.
Net income on a GAAP basis was $0.8 million or $0.01 per diluted share,
compared to a net loss of $5.0 million or a loss of $0.04 per diluted share in
the year-ago quarter.
Non-GAAP net income for the fiscal fourth quarter of 2008, excluding
$1.3 million in stock-based compensation charges and a $0.9 million change in
estimate related to our prior restructuring accruals, was $3.0 million or
$0.03 per diluted share. That compares to year-ago non-GAAP net income of
$0.3 million or $0.00 per diluted share, excluding $1.2 million in stock-based
compensation charges, $1.3 million related to the special investigation into
historical stock option grants, and $2.9 million in restructuring charges.
For the fiscal year ended June 29, 2008, net revenue was $361.8 million,
up 6% from $342.8 million for the prior fiscal year. GAAP net income was
$8.4 million or $0.07 per diluted share, compared to a GAAP net loss of
$14.2 million or a loss of $0.12 per diluted share in fiscal 2007. Non-GAAP
net income was $14.3 million or $0.12 per diluted share, compared to non-GAAP
net income of $2.9 million or $0.03 per diluted share in fiscal 2007. A
reconciliation of GAAP to non-GAAP financial measures is included in the
accompanying financial tables.
"With revenue up 13% for the quarter and 6% for the year, we continue to
gain momentum with our channels and end users," said Mark Canepa, president
and CEO of Extreme Networks. "Our newer products are being particularly well
received in our chosen markets, where there is healthy demand for innovative
solutions that scale to meet our customers' evolving needs."
For the fiscal fourth quarter of 2008, revenues in North America (U.S.,
Canada, and Central America) were $45.1 million, revenues in EMEA (Europe,
Middle East, Africa, and South America) were $38.8 million, and revenues in
Asia (Asia Pacific and Japan) were $14.4 million. That compares to year-ago
revenues of $41.5 million in North America, $33.4 million in EMEA, and
$12.2 million in Asia.
Cash, short-term investments, and marketable securities were
$225.7 million as of June 29, 2008, compared to $231.1 million as of March 30,
2008.
Conference Call
Extreme Networks will host a conference call to discuss these results
today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). A live webcast and
replay of the call will be available at
http://www.extremenetworks.com/about-extreme/investor-relations.aspx .
Financial information to be discussed during the conference call is posted on
the Investor Relations section of the Company's website
(http://www.extremenetworks.com).
Balance Sheet Reclassification
During the quarter, the company reclassified its balance sheet
presentation of various accounts related to its sales to distributors. This
reclassification more closely aligns to its financial "rights and obligations"
related to dealings with its distribution channel. This is a reclassification
of information previously disclosed in regulatory filings and does not have
any impact on the company's revenue recognition. The company's prior period
balance sheets have been reclassified to conform to its current presentation.
The company has included the prior quarter reclassified balance sheet in the
current press release in order to assist in identifying the changes we made.
Specifically, the company reclassified the following three items: -- Cash
receivables from distributors have been reclassified from "prepaid
expenses and other current assets, net" to "accounts receivable, net;"
-- Deferred revenue associated with distributors has been reclassified
from "prepaid expenses and other current assets, net" to "deferred
revenue, net of cost of sales to distributors;" and
-- Inventory owned by distributors has been reclassified from
"inventories, net" to "deferred revenue, net of cost of sales to
distributors," as an offset to the related deferred revenue, in effect
leaving a deferred margin within current liabilities.

Non-GAAP Financial Measures
Extreme Networks provides all financial information required in accordance
with generally accepted accounting principles (GAAP). To supplement its
consolidated financial statements presented in accordance with GAAP, we are
also providing with this press release non-GAAP net income and non-GAAP net
income per share information. In preparing our non-GAAP information, we have
excluded, where applicable, stock compensation (a non-cash charge), costs
associated with our special investigation into our historical stock option
grants (a non-recurring charge), and the impact of restructuring charges (a
non-recurring charge). Because of the non-recurring or infrequent nature
and/or non-cash nature of these charges, we believe that excluding them
provides both management and investors with additional insight into our
current operations, the trends affecting the Company and the Company's
marketplace performance. In particular, management finds it useful to exclude
the non-cash charges in order to more readily correlate the Company's
operating activities with the Company's ability to generate cash from
operations, and excludes the non-recurring and infrequently incurred cash
items as a means of more accurately predicting liquidity requirements.
Accordingly, management uses these non-GAAP measures, along with the
comparable GAAP information, in evaluating our historical performance and in
planning our future business activities. Please note that our non-GAAP
measures may be different than those used by other companies. The additional
non-GAAP financial information we present should be considered in conjunction
with, and not as a substitute for, our financial information presented in
accordance with GAAP. We have provided a non-GAAP reconciliation of the
Consolidated Statement of Operations for the fiscal quarters and 12 months
ended June 29, 2008 and July 1, 2007, which are adjusted to exclude
share-based compensation expense, costs associated with our special
investigation into our historical stock option grants and restructuring
charges. These measures should only be used to evaluate the Company's results
of operations in conjunction with the corresponding GAAP measures for
comparable financial information and understanding of the Company's ongoing
performance as a business. Extreme Networks uses both GAAP and non-GAAP
measures to evaluate and manage its operations.
Extreme Networks, Inc.
Extreme Networks designs, builds, and installs Ethernet infrastructure
solutions that help solve the toughest business communications challenges. The
company's commitment to open networking sets us apart from the alternatives by
delivering meaningful insight and unprecedented control to applications and
services. Extreme Networks believes that openness is the best foundation for
growth, freedom, flexibility and choice. The company is focused on
enterprises and service providers who demand high performance, converged
networks that support voice, video and data over a wired and wireless
infrastructure.
Extreme Networks and the Extreme Networks logo are either registered
trademarks or trademarks of Extreme Networks, Inc. in the United States and
other countries. All other trademarks are the property of their respective
owners.
This announcement contains forward-looking statements that involve risks
and uncertainties, including statements regarding acceptance of our newer
products in the market and our expectations regarding our products. Actual
results could differ materially from those projected in the forward-looking
statements as a result of certain risk factors, including, but not limited to:
fluctuations in demand for our products and services; a highly competitive
business environment for network switching equipment, our effectiveness in
controlling expenses, the possibility that we might experience delays in the
development of new technology and products; customer response to our new
technology and products; the timing of any recovery in the global economy,
risks related to pending or future litigations, and a dependency on third
parties for certain components and for the manufacturing of our products. We
undertake no obligation to update the forward-looking information in this
release. More information about potential factors that could affect our
business and financial results is included in our filings with the Securities
and Exchange Commission, including, without limitation, under the captions:
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Risk Factors," which is on file with the Securities and
Exchange Commission."

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

June 29, March 30, July 1,
2008 2008 2007
(unaudited) (unaudited) (1),(2)
(2)
ASSETS
Current assets:
Cash and cash equivalents $70,370 $71,886 $71,573
Short-term investments 42,922 48,092 91,599
Accounts receivable, net 64,417 48,690 46,420
Inventories, net 13,942 14,447 21,681
Deferred income taxes 254 400 1,118
Prepaid expenses and other
current assets, net 4,654 5,856 5,189
Total current assets 196,559 189,371 237,580
Property and equipment, net 43,348 41,579 43,156
Marketable securities 112,380 111,077 52,683
Other assets, net 13,474 14,811 20,102
Total assets $365,761 $356,838 $353,521

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $16,921 $11,793 $21,303
Accrued compensation and
benefits 18,956 18,074 14,841
Restructuring liabilities 2,612 2,751 5,532
Accrued warranty 4,824 5,053 7,182
Deferred revenue, net 31,284 32,312 31,797
Deferred revenue, net of cost
of sales to distributors 14,138 13,002 11,987
Other accrued liabilities 27,728 23,127 23,263
Total current liabilities 116,463 106,112 115,905

Restructuring liabilities, less current
portion 6,777 6,410 8,456
Deferred revenue, less current portion 9,006 9,465 10,286
Deferred income taxes 403 390 688
Other long-term liabilities 1,058 1,169 1,961

Commitments and contingencies

Stockholders' equity:
Common stock and capital in
excess of par value 943,283 941,521 934,540
Treasury stock (48,303) (48,303) (48,303)
Accumulated other
comprehensive income (723) 3,049 572
Accumulated deficit (662,203) (662,975) (670,584)
Total stockholders'
equity 232,054 233,292 216,225
Total liabilities and
stockholders' equity $365,761 $356,838 $353,521

(1) Consolidated balance sheet at July 1, 2007 has been derived from
audited financial statements.

(2) The Consolidated Balance Sheets for these periods have been
reclassified to conform with the current period presentation related
to our distributor business.

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)

Three Months Ended Twelve Months Ended
June 29, July 1, June 29, July 1,
2008 2007 2008 2007
Net revenues:
Product $83,353 $71,863 $302,313 $280,497
Service 14,960 15,235 59,522 62,337
Total net
revenues 98,313 87,098 361,835 342,834

Cost of revenues:
Product 33,911 31,398 123,333 124,298
Service 8,272 7,997 33,194 33,341
Total cost of
revenues 42,183 39,395 156,527 157,639

Gross profit:
Product 49,442 40,465 178,980 156,199
Service 6,688 7,238 26,328 28,996
Total gross
margin 56,130 47,703 205,308 185,195

Operating expenses:
Sales and marketing 28,432 25,893 103,252 102,052
Research and
development 16,112 17,314 65,335 67,085
General and
administrative 10,931 8,315 34,655 33,638
Restructuring charge 893 2,857 893 4,003
Total operating
expenses 56,368 54,379 204,135 206,778

Operating income (loss) (238) (6,676) 1,173 (21,583)
Other income, net 1,773 2,217 9,387 9,526
Income (loss) before income
taxes 1,535 (4,459) 10,560 (12,057)
Provision for income taxes 762 586 2,178 2,140

Net income (loss) $773 $(5,045) $8,382 $(14,197)

Basic and diluted net income
(loss) per share:
Net income (loss) per share -
basic $0.01 $(0.04) $0.07 $(0.12)
Net income (loss) per share -
diluted $0.01 $(0.04) $0.07 $(0.12)
Shares used in per share
calculation - basic 115,944 113,604 115,002 114,122
Shares used in per share
calculation - diluted 116,171 113,604 115,345 114,122

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

Year Ended
June 29, July 1,
2008 2007
Cash flows from operating activities:
Net income (loss) $8,382 $(14,197)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 7,193 7,926
Provision for doubtful accounts 416 -
Provision for excess and obsolete
inventory 2,172 3,030
Deferred income taxes 578 64
Amortization of warrant 1,349 4,048
Restructuring charge 893 4,003
Loss (gain) on disposal of assets 299 54
Stock-based compensation 5,059 6,183
Changes in operating assets and
liabilities, net
Accounts receivable (18,413) (1,353)
Inventories 5,567 (9,492)
Prepaid expenses and other assets 5,813 (2,342)
Accounts payable (4,382) 1,165
Accrued compensation and benefits 4,115 3,083
Restructuring liabilities (5,492) (7,057)
Accrued warranty (2,359) 155
Deferred revenue 360 (279)
Other accrued liabilities 4,616 4,739
Net cash provided by (used in)
operating activities 16,166 (270)

Cash flows (used in) provided by investing
activities:
Capital expenditures (7,683) (4,637)
Purchases of investments (307,442) (210,711)
Proceeds from maturities of investments
and marketable securities 122,063 213,153
Proceeds from sales of investments and
marketable securities 172,009 195,520
Net cash (used in) provided by
investing activities (21,053) 193,325

Cash flows provided by (used in) financing
activities:
Proceeds from issuance of common stock,
net of repurchases 3,684 523
Repurchase of common stock - (14,603)
Principal payment on convertible debt - (200,000)
Net cash provided by (used in)
financing activities 3,684 (214,080)

Net increase (decrease) in cash and cash
equivalents (1,203) (21,025)
Cash and cash equivalents at
beginning of period 71,573 92,598
Cash and cash equivalents at end of
period $70,370 $71,573

Supplemental disclosure of cash flow
information:
Interest paid $- $3,500
Cash paid for income taxes, net $996 $5,285

EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
(In thousands)
(unaudited)

Three Months Ended Twelve Months Ended
June 29, July 1, June 29, July 1,
2008 2007 2008 2007

Net income (loss) - GAAP Basis $773 $(5,045) $8,382 $(14,197)

Non-GAAP adjustments
Stock-based compensation expense $1,335 $1,200 5,059 6,183
Stock option investigation
expenses - 1,298 - 6,916
Restructuring charge 893 2,857 893 4,003
Total Non-GAAP adjustments $2,228 $5,355 $5,952 $17,102

Net income (loss) - Non-GAAP
Basis $3,001 $310 $14,334 $2,905

Non-GAAP adjustments
Cost of product revenue $127 $184 $479 $771
Cost of service revenue 68 51 251 359
Sales and marketing 431 401 1,656 2,173
Research and development 423 317 1,554 1,834
General and administrative 286 1,545 1,119 7,962
Restructuring charge 893 2,857 893 4,003
Total Non-GAAP adjustments $2,228 $5,355 $5,952 $17,102

SOURCE Extreme Networks, Inc.

Investor Relations, +1-408-579-3030, investor_relations@extremenetworks.com,
or Public Relations, +1-408-579-3483, gcross@extremenetworks.com, both of
Extreme Networks, Inc.