EXTR

Extreme Networks, Inc. (EXTR)

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Extreme Networks (EXTR)

Q1 2014 Earnings Call

November 04, 2013 8:00 am ET

Executives

John T. Kurtzweil - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Charles W. Berger - Chief Executive Officer, President and Director

Analysts

Mark Kelleher - D.A. Davidson & Co., Research Division

Christian D. Schwab - Craig-Hallum Capital Group LLC, Research Division

Rohit N. Chopra - Wedbush Securities Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Extreme Networks First Quarter Fiscal 2014 Financial Results Conference Call. As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, John Kurtzweil, CFO. Please go ahead.

John T. Kurtzweil

Thank you, Mercy. Welcome to the Extreme Networks First Fiscal Quarter of 2014 Conference Call. On the call with me today is Chuck Berger, Extreme Networks' President and CEO.

This conference call is being broadcast live over the Internet and is being recorded on behalf of the company. The recording will be posted on Extreme Networks' website for replay shortly after the conclusion of the call and will remain there for the next 7 days. The presentations and the recordings of this call are copyrighted property of the company, and no other recording or reproduction is permitted unless authorized by the company in writing.

By now, you have had a chance to review today's first quarter fiscal 2014 earnings press release. For your convenience, a copy of the release and supporting financial materials are available on the Investor Relations section of the company's website at www.extremenetworks.com.

This conference call contains forward-looking statements that involve risk and uncertainties, including statements regarding the company's expectations regarding its financial performance, the impact of the Enterasys Networks acquisition, strategies for growth of customer demand, development of new products, customer acceptance of the company's products, customer buying patterns and spending patterns and overall trends and economic conditions in the company's markets.

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, a challenging macroeconomic environment worldwide, fluctuations in demand for the company's products and services, a highly competitive business environment for network switching equipment, the company's effectiveness in controlling expenses, the possibility that the company might experience delays in the development of new technologies and products, customer response to its new technologies and products, risks related to pending or future litigation, the dependency on other parties for certain components for the manufacturing of the company's products and our ability to receive the anticipated benefit of the acquisition of Enterasys.

The company undertakes no obligation to update information on the conference call. For more information about potential factors that affect our business and financial results, we suggest you review the company's filings with the Securities and Exchange Commission.

Throughout the conference call, the company will reference some financial metrics that are derived in accordance with generally accepted accounting principles or GAAP while other metrics are not in accordance with GAAP. This approach is consistent with how management measures the company's results internally. However, non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered as supplement to, and not as substitute for, financial statements prepared in accordance with GAAP.

A reconciliation of the non-GAAP information to the corresponding GAAP measures is in the slide presentation under the Investor Relations tab on our website and accompanying our press release. Non-GAAP results exclude stock-based compensation, acquisition-related costs, restructuring charges and the gain on the sale of facilities.

Before I go to -- into a review of our fiscal Q1 financial results, I will turn the call over to Chuck Berger for some opening comments.

Charles W. Berger

Thanks, John, and good early morning to everyone on the call. Thanks for joining us. It's an extremely exciting time at Extreme Networks as we completed our first fiscal quarter on September 30 and announced the completion of the acquisition of Enterasys late last week on November 1.

First, let's talk about the quarter. This morning, we reported first quarter revenues of $75.9 million, reaching the high end of our guidance, stopping year-over-year revenue declines and meeting our internal annual plan. At $0.06 earnings per share, we are at the high end of guidance on earnings and up $0.02 versus the prior year's first quarter. Our cash balance was $199.4 million at the end of the quarter.

We are particularly pleased with these results given the challenges we faced during the quarter. July and August are seasonally slow business months in virtually every region globally. Additionally, we continue to face shortages of our most popular products through the end of August. I am happy to report that by the end of September, our inventories were back at the levels needed to support our revenue run rate going forward. Looking ahead, product shortages will not be an issue.

Finally, we announced our planned acquisition of Enterasys in the middle of the last month of the quarter. Fortunately, the announcement did not disrupt our quarter end revenue close.

We continue to focus on building partnerships to create leverage and allow us to fight above our weight. In addition to our existing partnerships with Ericsson and the partnership we announced last quarter with Lenovo, we signed partnerships with Aviat and SGI during the quarter. Aviat will be reselling Extreme switches and routers along with their microwave networking solutions, and SGI will be reselling our products along with their high-performance data center solutions, with particular focus on cloud and big data applications. Not only do these partnerships give us strong leverage in the market, they are strong endorsements of Extreme technology and products from an increasing number of leading IT vendors.

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