Extreme Networks, Inc. (EXTR) Bundle
Understanding Extreme Networks, Inc. (EXTR) Revenue Streams
Understanding Extreme Networks, Inc.’s Revenue Streams
Extreme Networks, Inc. generates revenue primarily from two key streams: product sales and subscription and support services. As of the first quarter ended September 30, 2024, the revenue breakdown is as follows:
| Revenue Source | Amount (in thousands) | Percentage of Total Revenue |
|---|---|---|
| Product Revenue | $162,284 | 60.3% |
| Subscription & Support Revenue | $106,920 | 39.7% |
| Total Revenue | $269,204 | 100% |
Comparing year-over-year performance, the total net revenues for the three months ended September 30, 2024, were $269,204, a decrease of 23.8% from $353,137 in the same period in 2023. The product revenue saw a significant decline of 36.0% from $253,483 in 2023, while subscription and support revenue increased by 7.3% from $99,654 in 2023.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth exhibits a downward trend, with the following historical data:
| Fiscal Year | Net Revenue (in thousands) | Year-over-Year Growth Rate |
|---|---|---|
| 2023 | $353,137 | N/A |
| 2024 (Q1) | $269,204 | -23.8% |
Contribution of Different Business Segments to Overall Revenue
The contribution of different business segments to overall revenue indicates a shift in the revenue model:
- Product Revenue: Decreased to $162,284 (60.3% of total revenue).
- Subscription and Support Revenue: Increased to $106,920 (39.7% of total revenue).
This shift highlights the growing importance of recurring revenue streams, which can provide more stability compared to traditional product sales.
Analysis of Significant Changes in Revenue Streams
Notable changes in revenue streams include:
- Product revenues decreased by $91,199 or 36.0% compared to the prior year, primarily attributed to lower bookings and macroeconomic conditions.
- Subscription and support revenues increased by $7,266 or 7.3%, reflecting growth in SaaS offerings and support contracts.
Overall, the data indicates a strategic shift towards more subscription-based revenue, which is increasingly becoming a larger portion of total revenues.
A Deep Dive into Extreme Networks, Inc. (EXTR) Profitability
A Deep Dive into Extreme Networks, Inc. (EXTR)'s Profitability
Gross Profit Margin
For the three months ended September 30, 2024, the total gross profit was $169,507 thousand, down from $212,936 thousand in the same period for 2023, reflecting a decrease of 20.4%. The gross profit margin for this period was 63.0%, compared to 60.3% in the prior year.
| Period | Total Gross Profit ($000) | Gross Margin (%) |
|---|---|---|
| September 30, 2024 | $169,507 | 63.0% |
| September 30, 2023 | $212,936 | 60.3% |
Operating Profit Margin
The operating loss for the three months ended September 30, 2024, was ($4,717) thousand, compared to an operating income of $35,899 thousand for the same period in 2023. This signifies a significant decline in operating performance.
| Period | Operating Income (Loss) ($000) | Operating Margin (%) |
|---|---|---|
| September 30, 2024 | ($4,717) | N/A |
| September 30, 2023 | $35,899 | 10.2% |
Net Profit Margin
The net loss for the three months ended September 30, 2024, was ($10,504) thousand, compared to a net income of $28,676 thousand in the same period for 2023, resulting in a net profit margin of (3.9%).
| Period | Net Income (Loss) ($000) | Net Profit Margin (%) |
|---|---|---|
| September 30, 2024 | ($10,504) | (3.9%) |
| September 30, 2023 | $28,676 | 8.1% |
Trends in Profitability Over Time
Comparing the recent quarter with the same quarter last year shows a stark decline in profitability across all margins. The decrease in gross profit and net income is particularly significant, highlighting challenges in revenue generation and operational efficiency.
Comparison of Profitability Ratios with Industry Averages
As of September 30, 2024, the total gross margin of 63.0% exceeds the industry average of approximately 55.0%. However, the operating margin and net profit margin are below industry benchmarks, which typically range from 5% to 15% for similar companies.
Analysis of Operational Efficiency
The operating expenses for the three months ended September 30, 2024, totaled $174,224 thousand, a slight decrease from $177,037 thousand in the previous year, demonstrating a focus on cost management. Major components of operating expenses include:
| Expense Type | Q1 2025 ($000) | Q1 2024 ($000) | Change (%) |
|---|---|---|---|
| Research and Development | $54,451 | $58,016 | (6.1%) |
| Sales and Marketing | $81,383 | $91,920 | (11.5%) |
| General and Administrative | $36,601 | $23,873 | 53.3% |
| Total Operating Expenses | $174,224 | $177,037 | (1.6%) |
The increase in general and administrative expenses is noteworthy, indicating potential inefficiencies or increased overhead costs that need to be addressed. Overall, while gross margins remain relatively strong, the decline in operating and net profit margins indicates a need for strategic adjustments to improve overall profitability.
Debt vs. Equity: How Extreme Networks, Inc. (EXTR) Finances Its Growth
Debt vs. Equity: How Extreme Networks, Inc. Finances Its Growth
Overview of Debt Levels:
As of September 30, 2024, the company reported total debt of $184.9 million, which comprises short-term and long-term debt. The current portion of long-term debt stands at $10.5 million, while the long-term portion is $174.4 million.
Debt-to-Equity Ratio:
The debt-to-equity ratio is calculated by dividing total debt by total equity. As of September 30, 2024, total equity was approximately $32.7 million. This results in a debt-to-equity ratio of approximately 5.65, indicating a heavy reliance on debt financing compared to equity.
Comparison to Industry Standards:
The technology sector typically has a debt-to-equity ratio averaging around 1.0 to 1.5. Therefore, the company's ratio significantly exceeds this benchmark, suggesting a more aggressive capital structure.
Recent Debt Issuances and Credit Ratings:
The company is currently operating under an Amended Credit Agreement, with a total of $200 million allocated for the term loan and an additional $150 million revolving credit facility. As of September 30, 2024, the average interest rate on the outstanding debt was 7.52%. The company maintains compliance with all covenants under this credit agreement.
Debt Refinancing Activity:
On August 14, 2024, the company amended its credit agreement to modify the definition of consolidated EBITDA for evaluating compliance with financial covenants. This amendment reflects the company's ongoing efforts to optimize its debt structure.
Balancing Debt Financing and Equity Funding:
In the fiscal quarter ending September 30, 2024, the company utilized $9.1 million in financing activities, primarily for tax payments related to stock awards and scheduled debt repayments. The company's strategy involves balancing its debt obligations with equity financing through stock issuances, which totaled approximately $5.9 million in the same quarter.
| Financial Metric | Amount (in millions) |
|---|---|
| Total Debt | $184.9 |
| Current Portion of Long-Term Debt | $10.5 |
| Long-Term Debt | $174.4 |
| Total Equity | $32.7 |
| Debt-to-Equity Ratio | 5.65 |
| Average Interest Rate | 7.52% |
| Financing Activities | $9.1 |
| Stock Issuances | $5.9 |
Assessing Extreme Networks, Inc. (EXTR) Liquidity
Assessing Liquidity and Solvency
As of September 30, 2024, the liquidity position of the company shows a current ratio of 0.90, calculated from current assets of $476.8 million and current liabilities of $526.4 million.
The quick ratio, a more stringent measure of liquidity that excludes inventories, stands at 0.72, with quick assets (cash and cash equivalents plus accounts receivable) of $256.8 million against the same current liabilities of $526.4 million.
Working Capital Trends
Working capital, defined as current assets minus current liabilities, is currently -$49.6 million, indicating potential liquidity concerns. This represents a decrease from the previous quarter, where the working capital was -$50.7 million.
Cash Flow Statements Overview
The cash flow from operating activities for the three months ended September 30, 2024, was $18.6 million, a significant decrease from $75.6 million for the same period in 2023. This decline is attributed to a net loss of $10.5 million and changes in working capital components.
The cash flows from investing activities were -$6.9 million for the same period, compared to -$4.3 million in 2023, primarily due to increased capital expenditures.
Cash flows used in financing activities totaled -$9.1 million, a drastic reduction from -$81.5 million in the previous year. This includes debt repayments of $2.5 million and stock award tax payments of $5.9 million.
| Cash Flow Component | September 30, 2024 (in millions) | September 30, 2023 (in millions) |
|---|---|---|
| Net Cash Provided by Operating Activities | $18.6 | $75.6 |
| Net Cash Used in Investing Activities | -$6.9 | -$4.3 |
| Net Cash Used in Financing Activities | -$9.1 | -$81.5 |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company reported cash and cash equivalents of $159.5 million, an increase from $156.7 million as of June 30, 2024. The company also holds accounts receivable of $97.2 million and has available borrowings under its revolving credit facility amounting to $135.8 million.
The total debt outstanding is $187.5 million, with debt service obligations structured into quarterly installments through fiscal year 2028. The company maintains compliance with its credit agreement financial covenants, indicating a level of operational stability despite current liquidity challenges.
Is Extreme Networks, Inc. (EXTR) Overvalued or Undervalued?
Valuation Analysis
In assessing the valuation of Extreme Networks, Inc. (EXTR), we will analyze key financial ratios, stock price trends, and market consensus to determine whether the company is overvalued or undervalued.
Price-to-Earnings (P/E) Ratio
The P/E ratio provides insight into how much investors are willing to pay per dollar of earnings. As of the latest fiscal quarter:
- Trailing P/E Ratio: - $3.74 (negative earnings per share for the latest quarter)
- Forward P/E Ratio: - Not applicable due to negative net income
Price-to-Book (P/B) Ratio
The P/B ratio compares a company's market value to its book value. As of September 30, 2024:
- Market Price per Share: $3.74
- Book Value per Share: $2.18
- P/B Ratio: 1.71
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
This ratio indicates how the market values a company relative to its earnings before interest, taxes, depreciation, and amortization.
- Enterprise Value: $563.7 million
- EBITDA (latest 12 months): $50.2 million
- EV/EBITDA Ratio: 11.22
Stock Price Trends
Analyzing the stock price movements over the last 12 months:
- 12-Month High: $8.09
- 12-Month Low: $3.74
- Current Stock Price: $3.74
- Price Change (1 Year): -53.8%
Dividend Yield and Payout Ratios
As of the latest financial data, Extreme Networks does not pay a dividend. Therefore:
- Dividend Yield: 0%
- Payout Ratio: Not applicable
Analyst Consensus on Stock Valuation
Analyst ratings provide insights into market sentiment regarding the stock:
- Buy Ratings: 2
- Hold Ratings: 5
- Sell Ratings: 1
- Average Price Target: $5.00
Summary Table of Key Valuation Metrics
| Metric | Value |
|---|---|
| Trailing P/E Ratio | $3.74 |
| Forward P/E Ratio | N/A |
| Market Price per Share | $3.74 |
| Book Value per Share | $2.18 |
| P/B Ratio | 1.71 |
| Enterprise Value | $563.7 million |
| EBITDA | $50.2 million |
| EV/EBITDA Ratio | 11.22 |
| Dividend Yield | 0% |
| Average Price Target | $5.00 |
Key Risks Facing Extreme Networks, Inc. (EXTR)
Key Risks Facing Extreme Networks, Inc.
The financial health of Extreme Networks, Inc. is influenced by various internal and external risks that could impact its operations and profitability.
Industry Competition
The networking equipment industry is highly competitive, with significant pressure from established players. In the first quarter of fiscal 2025, the company reported a 36.0% decrease in product revenues, totaling $162.3 million, down from $253.5 million in the previous year, reflecting competitive pressures and market dynamics.
Market Conditions
Macroeconomic factors have negatively affected demand for networking products. The total net revenues for the three months ended September 30, 2024, were $269.2 million, a 23.8% decline from $353.1 million for the same period in fiscal 2024.
Regulatory Changes
Changes in regulations, particularly related to data privacy and security, could impose additional compliance costs. As of September 30, 2024, the company had $187.5 million of debt outstanding, which is subject to financial covenants under its Amended Credit Agreement.
Operational Risks
Operational risks include reliance on third-party suppliers for components. The company has $37.3 million in non-cancelable commitments for inventory purchases. Any disruptions in the supply chain could severely impact product availability and revenue.
Financial Risks
As of September 30, 2024, the company reported a net loss of $10.5 million, compared to a net income of $28.7 million in the same quarter of the previous year. This significant shift highlights potential financial instability.
Strategic Risks
The company's strategic initiatives may not yield expected results. During the three months ended September 30, 2024, the company recorded $54.5 million in research and development expenses, a decrease of 6.1% compared to the prior year. Failure to innovate could hinder competitive positioning.
Mitigation Strategies
To address these risks, the company has implemented several strategies:
- Cost Control: The company has focused on controlling operational expenses, reporting total operating expenses of $174.2 million, down from $177.0 million in the previous year.
- Diversification: Expanding product lines and entering new markets to reduce dependence on specific segments.
- Strategic Partnerships: Strengthening relationships with key suppliers to ensure reliable access to components.
| Risk Factor | Description | Financial Impact |
|---|---|---|
| Industry Competition | High competitive pressure from established firms | Product revenues down 36.0% |
| Market Conditions | Macroeconomic factors affecting demand | Total net revenues down 23.8% |
| Regulatory Changes | Potential compliance costs due to new regulations | Debt outstanding $187.5 million |
| Operational Risks | Reliance on third-party suppliers | Commitments to purchase inventory $37.3 million |
| Financial Risks | Significant shift in profitability | Net loss of $10.5 million |
| Strategic Risks | Failure to innovate and remain competitive | R&D expenses $54.5 million |
Understanding these risks is crucial for assessing the company's financial health and potential future performance.
Future Growth Prospects for Extreme Networks, Inc. (EXTR)
Future Growth Prospects for Extreme Networks, Inc.
Product Innovations: The company is focusing on expanding its portfolio with new innovations in switching, routing, and wireless technologies. The transition to Wi-Fi 6E and Wi-Fi 7 is pivotal, with expectations of increased demand due to the proliferation of IoT and mobile devices. The company claims to have the industry’s broadest 6 GHz wireless portfolio, enhancing its competitive edge in the networking space.
Market Expansions: The company is targeting high-growth segments within the campus and data center markets, leveraging automation and cloud networking solutions. The cloud networking market is projected to see a compound annual growth rate (CAGR) that outpaces traditional on-premises networking, indicating a significant opportunity for expansion.
Acquisitions: Strategic acquisitions have been a part of the company’s growth strategy, enhancing its capabilities and market reach. The company continues to explore potential acquisitions to augment its technology and service offerings, particularly in the areas of cloud networking and security.
Revenue Growth Projections: For the first quarter of fiscal 2025, the company reported net revenues of $269.2 million, a decrease of 23.8% compared to $353.1 million in the same period of fiscal 2024. Product revenues decreased by 36.0% to $162.3 million, while subscription and support revenues increased by 7.3% to $106.9 million, indicating a shift towards more stable revenue streams.
| Category | Q1 FY 2025 | Q1 FY 2024 | Change | Percentage Change |
|---|---|---|---|---|
| Net Revenues | $269.2 million | $353.1 million | $(83.9 million) | (23.8)% |
| Product Revenues | $162.3 million | $253.5 million | $(91.2 million) | (36.0)% |
| Subscription and Support Revenues | $106.9 million | $99.7 million | $7.2 million | 7.3% |
Strategic Initiatives: The company is enhancing its distribution channels through partnerships with key players in the market, allowing it to leverage enhanced routes to market and collaborative solutions. This strategy is aimed at increasing market penetration and driving revenue growth.
Competitive Advantages: The company’s technological leadership, particularly in software-driven networking solutions, positions it favorably against competitors. The ability to provide integrated solutions that combine hardware and software also enhances its value proposition to customers, making it a preferred choice for enterprises looking for comprehensive networking solutions.
Financial Health: As of September 30, 2024, the company reported cash and cash equivalents of $159.5 million, up from $156.7 million as of June 30, 2024. This liquidity supports ongoing investments in growth initiatives and strategic partnerships.
Long-term Debt: The company’s long-term debt stood at $187.5 million as of September 30, 2024, with obligations payable through fiscal year 2028, which indicates a manageable debt level in relation to its revenue potential.
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Article updated on 8 Nov 2024
Resources:
- Extreme Networks, Inc. (EXTR) Financial Statements – Access the full quarterly financial statements for Q1 2025 to get an in-depth view of Extreme Networks, Inc. (EXTR)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Extreme Networks, Inc. (EXTR)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.