AccessMyLibrary provides FREE access to millions of articles from top publications available through your library.
Original Source: FD (FAIR DISCLOSURE) WIRE
. Gordon Stitt, Extreme Networks, Inc., President, CEO . Bill Slakey, Extreme Networks, Inc., CFO . Jess Lubert, Banc of America Securities, Analyst . Samuel Wilson, JMP Securities, Analyst . Subu Subrahmanyan, Sanders Morris Harris, Analyst . Jiong Shao, Lehman Brothers, Analyst
. Tal Liani, Merrill Lynch, Analyst . Long Jiang, UBS Warburg, Analyst . Manny Recarey, Kaufman Brothers, Analyst . Jennifer Tennenbaum, RBC Capital Markets, Analyst . Eric Suppiger, Pacific Growth Equities, Analyst . Alex Henderson, Smith Barney Citigroup, Analyst
EXTR reported that its net revenue for 4Q06 was $82.4m, and net loss for 4Q06 was $1.8m or $0.02 per diluted share on a GAAP basis. On a GAAP basis, EXTR reported a 4Q06 operating loss of $3.9m, adding in $1.9m in net other income results in a loss before tax of $2.1m.
A. Key Data From Call 1. 4Q06 net revenues = $82.4m. 2. 4Q06 GAAP net loss = $1.8m. 3. 4Q06 GAAP net loss per diluted share = $0.02.
4. 4Q06 total GM = 53.1%. 5. 4Q06 CapEx = $1.5m. 6. 4Q06-end DSOs = 30 days. 7. 4Q06-end net inventory = $19.3m. 8. Cash and cash equivalents, short-term investments, and marketable securities as of July 2 = $433.1m. 9. 4Q06 share repurchase = 2.9m shares for $13.1m.
S1. Business Performance Highlights (G.S.) 1. Highlights: 1. Mike Palu will take over as acting CFO at EXTR starting next week. 2. Financial Summary: 1. Net revenue for 4Q06 was $82.4m, and net loss for 4Q06 was $1.8m or $0.02 per diluted share on a GAAP basis. 1. Excluding stock-based compensation expense of $2.2m, non-GAAP net income for 4Q06 was $400,000 or less than $0.01
per diluted share or breakeven. 2. This was a decline from $0.03 per diluted share on a non-GAAP basis in the March qtr. 2. During 1Q06, EXTR announced the $50m stock repurchase program.
1. During the last three quarters, the Co. has repurchased $33.7m in stock, cumulative-to-date. 2. The Co. is executing to its internal plan and will continue to do so going forward.
3. Bookings during 4Q06 were strong with a book to bill higher
than 1. 1. EXTR missed some shipments late in 4Q06 due to product constraints. 4. Japan business continued to be sluggish in 4Q06. 1. The Co. has seen similar comments from other networking
companies, but nonetheless the Co. is disappointed. 3. Modular Products: 1. EXTR saw strengthening demand for its modular product lines, BlackDiamond 8800, the new BlackDiamond 12K, and the
BlackDiamond 10K product lines. 1. This demand exceeded the Co.'s ability to produce within 4Q06 and this created the majority of its product constraints. 2. Much of the strong demand for the BlackDiamond 12K came from metro Ethernet carriers. 2. EXTR announced the 12K in Feb. 2006 and immediately went into field trials with carriers. 1. The Co. is currently progressing well through customer internal and external field trials at a number of carriers, both existing carrier customers of EXTR and most importantly
new carrier customers where this product became the Co.'s first point of contact. 3. People are attracted to the technology that EXTR delivers in its 12K for: 1. It's an excellent platform for delivering triple play networks, utilizing low-cost, low complexity Ethernet technology. 4. In addition to the traditional switching and routing capabilities for which the Co. is well known, the 12K delivers four important capabilities to Ethernet based triple play networks. 1. Subscriber management through the Co.'s higher [optical] quality of service. 2. Ethernet cross-connect to simplify content distribution. 3. Network scale using vMAN and Mac & Mac technologies. 4. ExtremeXOS, which enables XML based management insight and control. 5. EXTR believes the combination of these capabilities is a formula for success in this market.
6. Subscriber Management: 1. The Co. offers full subscriber management with scale to thousands of users with multiple services per user. 2. Carriers' talk about triple play, and the Co. can actually handle up to eight plays per subscriber. 7. Cross-Connect:
1. The Ethernet cross-connect simplifies carrier networks eliminating the need for routing at the edge or aggregation layer. 2. It supports the opposite of net neutrality (it allows carriers to control the bandwidth of content providers driving data into the network, as well as the bandwidth being allocated to individual users).
3. This gives carriers high levels of flexibility in how they design services and how they react to regulatory changes. 8. Mac & Mac: 1. EXTR also this week just sent out a press release regarding
the first trial of Mac & Mac, which can be used to scale networks or millions of users. 2. This technology provides a low-simple low cost way to build large triple play networks. 9. ExtremeXOS:
1. The BlackDiamond 12K runs ExtremeXOS, EXTR's open operating
system. 2. XOS provides the carrier with an XML interface to deliver insight and control. 1. Insight into how the network is being used and control over how customers use it whether business, residential, or content provider. 3. EXTR is pretty excited about the BlackDiamond 12K and its underlying technology. 4. The Co. is developing follow-on products in this category so that it can provide these benefits to a broad range of customers and to allow those customers to deliver those services in different points of presence. 10. The Co. believes that it has a lead over its competitors in its technology base, and its technology is a great fit for the problems at hand. 1. This is a dynamic, rapidly growing market and EXTR has expectations for the future growth of triple play networks based on Ethernet technology. 4. Americas: 1. Last fiscal year has been a disappointment for the Americas region. 2. EXTR saw turnover in its sales force and declining sales.
3. During 3Q06, EXTR executed a number of plans to improve its
topline performance, particularly in the US. 4. During 4Q06, EXTR saw continued signs of a turnaround. 1. The Co. saw sequential growth in the Americas sales for the second qtr. in a row. 5. EXTR has been hiring aggressively and started this new qtr. with a full team in place. 1. The Co. appointed [Eileen Brooker], a new VP of Sales for the Americas effective this past July 1.
6. The Co. has renewed confidence in the Americas and will be
hiring aggressively during 1Q07 and through the year to open
new offices and increase penetration into existing regions.
7. EXTR expects the combination of new leadership and increased
sales head count to line up nicely with its product side. 8. Most of the Co.'s American sales are enterprise. 5. Enterprise Products: 1. EXTR just refreshed its enterprise product line with new additions to its BlackDiamond 8800, a new series of
stackables, and the introduction of the enterprise version of
the BlackDiamond 12K. 2. BlackDiamond 8800: 1. BlackDiamond 8800 has grown significantly since its introduction early last year. 1. This product line is targeted at the enterprise and at enterprise data centers. 2. The new products EXTR introduced include: 1. An entirely new lineup of gigabit line cards, which significantly improved the performance and scalability of the BD 8800 at reduced price points. 3. Stackables: 1. The Co.'s new series of stackables, code named Jaguar, has received excellent reviews from the industry. 1. It extends XOS lower cost platforms, broadening the Co.'s footprint for this important differentiating technology. 4. BlackDiamond 12K: 1. The enterprise version of the BlackDiamond 12K is tied to the Co.'s security strategy, which was stated in 3Q06 call.
2. 12K brings all the same benefits of the BlackDiamond 10K, but at a lower entry price and smaller physical size. 1. Like the 10K, it implements CLEAR-Flow, the Co.'s security rules engine which allows security to be delivered on every port of the switch as opposed to the in-line model that the rest of the industry uses.
6. Channels: 1. During 1H06, EXTR reengineered its US channels program and began recruiting and training converged resellers.
1. The Co. thinks these as former voice resellers who are now
coming into the IP telephony market. 2. These resellers bring significant voice expertise and importantly a significant customer base. 2. The Co.'s partnership with Avaya, combined with the unique
technology it has developed, EXTR believes has positioned it
well for this new channel. 1. Growth in EXTR's Avaya partnership revenue grew 60% over 4Q05. 2. Avaya related bookings exceeded 10% of the Co.'s worldwide business. …