Extreme Networks Cuts Guidance, Streamlines Operations

Citing longer than expected sales cycles, Extreme Networks cut financial guidance for its fiscal second quarter ended December 31, 2012.  Sales were below expectations in the U.S. and EMEA, although the company said sales in Latin America and AsiaPac were promising.

The company outlined a number of steps it is taking to streamline operations, including consolidating certain customer service operations into facilities in North Carolina, eliminating a number of management positions, reducing certain real estate, and adopting a single sales structure.  The restructuring plan is expected to result in approximately $7.0 million in reduced quarterly costs once the plan is fully implemented. The Company expects to record a charge of approximately $5.5 to $7.0 million in the fiscal quarter ended on December 31, 2012.

On a conference call, Extreme Networks said the restructuring impacts about 13% of its workforce, although some of the customer service jobs will be transferred to North Carolina.

Key items in the updated guidance:

Net Revenue is estimated to be approximately $75 to $77 million, versus the low end of previously provided guidance of $78 million primarily due to delays in customer expenditures in EMEA and the US.

Gross Margin (GAAP and Non-GAAP) for FQ2'12 is expected to be approximately 54% to 55%.
Operating Expenses (GAAP) are expected to be in a range of $45.5 million to $47.5 million, which is above the range of previously provided guidance primarily due to the restructuring charges of approximately $5.5 to $7.0 million.

Operating Expenses (Non-GAAP) are expected to be in a range of $38.1 to $38.6 million, which is below the range of previously provided guidance primarily due to lower than expected headcount costs as well as management actions to reduce expenses.

Net Income (GAAP) is expected to be a loss in a range of $4.5 to $7.0 million, which is below the range of previously provided guidance primarily due to lower than expected revenue and the restructuring charges.  Diluted EPS is expected to be a loss in a range of $0.04 to $0.07.

Net Income (Non-GAAP) is expected to be in a range of $2.5 to $3.0 million, which is below the low-end of the range of previously provided guidance primarily due to lower than expected revenue.  Diluted EPS is expected to be in a range of $0.02 to $0.03.

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