UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2015
OR
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-25711
EXTREME NETWORKS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE |
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77-0430270 |
[State or other jurisdiction of incorporation or organization] |
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[I.R.S Employer Identification No.] |
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145 Rio Robles, San Jose, California |
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95134 |
[Address of principal executive office] |
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[Zip Code] |
Registrant’s telephone number, including area code: (408) 579-2800
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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x |
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Non-accelerated filer |
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o (Do not check if a smaller reporting company) |
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Smaller reporting company |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of the Registrant’s Common Stock, $.001 par value, outstanding at January 22, 2016, was 103,319,359
FORM 10-Q
QUARTERLY PERIOD ENDED December 31,
2015
INDEX
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PAGE |
PART I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION |
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Item 1. |
Condensed Consolidated Financial Statements (Unaudited): |
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Condensed Consolidated Balance Sheets as of December 31 and June 30, 2015 |
3 |
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4 |
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5 |
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Condensed Consolidated Statements of Cash Flows for the Six Months ended December 31, 2015 and 2014 |
6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
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Item 3. |
29 |
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Item 4. |
30 |
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Item 1. |
32 |
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Item 1A |
32 |
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Item 2. |
44 |
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Item 3. |
44 |
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Item 4. |
44 |
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Item 5. |
44 |
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Item 6. |
45 |
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46 |
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
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December 31, 2015 |
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June 30, 2015 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
85,865 |
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$ |
76,225 |
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Accounts receivable, net of allowances of $6,464 at December 31, 2015 and $2,396 at June 30, 2015 |
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73,110 |
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92,737 |
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Inventories |
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56,601 |
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58,014 |
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Deferred income taxes |
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705 |
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760 |
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Prepaid expenses and other current assets |
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9,925 |
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10,258 |
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Total current assets |
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226,206 |
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237,994 |
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Property and equipment, net |
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32,948 |
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39,862 |
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Intangible assets, net |
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35,138 |
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52,132 |
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Goodwill |
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70,877 |
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70,877 |
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Other assets |
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27,618 |
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27,795 |
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Total assets |
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$ |
392,787 |
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$ |
428,660 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Current portion of long-term debt |
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$ |
14,625 |
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$ |
11,375 |
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Accounts payable |
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25,536 |
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40,135 |
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Accrued compensation and benefits |
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28,995 |
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25,195 |
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Accrued warranty |
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10,415 |
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8,676 |
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Deferred revenue, net |
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75,548 |
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76,551 |
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Deferred distributors revenue, net of cost of sales to distributors |
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31,677 |
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40,875 |
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Other accrued liabilities |
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29,968 |
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32,623 |
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Total current liabilities |
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216,764 |
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235,430 |
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Deferred revenue, less current portion |
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21,505 |
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23,231 |
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Long-term debt, less current portion |
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47,375 |
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55,500 |
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Deferred income taxes |
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3,471 |
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2,979 |
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Other long-term liabilities |
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8,536 |
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7,285 |
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Commitments and contingencies (Note 8) |
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Stockholders’ equity: |
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Convertible preferred stock, $.001 par value, issuable in series, 2,000,000 shares authorized; none issued |
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— |
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— |
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Common stock, $.001 par value, 750,000,000 shares authorized; 103,229,140 shares issued and outstanding at December 31, 2015 and 100,284,106 shares issued and outstanding at June 30, 2015 |
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103 |
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100 |
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Additional paid-in-capital |
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876,225 |
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865,282 |
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Accumulated other comprehensive loss |
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(2,576 |
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(1,291 |
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Accumulated deficit |
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(778,616 |
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(759,856 |
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Total stockholders’ equity |
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95,136 |
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104,235 |
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Total liabilities and stockholders’ equity |
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$ |
392,787 |
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$ |
428,660 |
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See accompanying notes to condensed consolidated financial statements.
3
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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December 31, 2015 |
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December 31, 2014 |
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December 31, 2015 |
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December 31, 2014 |
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Net revenues: |
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Product |
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$ |
105,355 |
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$ |
112,501 |
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$ |
196,736 |
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$ |
215,173 |
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Service |
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33,950 |
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34,707 |
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67,150 |
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68,309 |
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Total net revenues |
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139,305 |
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147,208 |
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263,886 |
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283,482 |
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Cost of revenues: |
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Product |
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57,103 |
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60,496 |
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104,037 |
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114,521 |
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Service |
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11,927 |
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11,550 |
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24,456 |
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23,272 |
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Total cost of revenues |
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69,030 |
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72,046 |
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128,493 |
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137,793 |
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Gross profit: |
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Product |
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48,252 |
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52,005 |
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92,699 |
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100,652 |
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Service |
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22,023 |
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23,157 |
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42,694 |
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45,037 |
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Total gross profit |
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70,275 |
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75,162 |
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135,393 |
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145,689 |
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Operating expenses: |
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Research and development |
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20,716 |
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24,000 |
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40,984 |
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47,347 |
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Sales and marketing |
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37,058 |
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43,971 |
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73,120 |
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88,750 |
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General and administrative |
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9,775 |
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10,306 |
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18,951 |
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21,380 |
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Acquisition and integration costs |
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807 |
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3,500 |
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1,145 |
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7,558 |
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Restructuring charge, net of reversals |
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3,031 |
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— |
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8,634 |
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— |
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Amortization of intangibles |
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4,251 |
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4,467 |
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8,718 |
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8,934 |
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Total operating expenses |
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75,638 |
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86,244 |
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151,552 |
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173,969 |
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Operating loss |
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(5,363 |
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(11,082 |
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(16,159 |
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(28,280 |
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Interest income |
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29 |
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196 |
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56 |
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342 |
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Interest expense |
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(809 |
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(825 |
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(1,635 |
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(1,661 |
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Other income (expense), net |
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112 |
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(64 |
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1,079 |
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(498 |
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Loss before income taxes |
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(6,031 |
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(11,775 |
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(16,659 |
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(30,097 |
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Provision for income taxes |
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1,203 |
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1,330 |
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2,101 |
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2,338 |
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Net loss |
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$ |
(7,234 |
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$ |
(13,105 |
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$ |
(18,760 |
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$ |
(32,435 |
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Basic and diluted net loss per share: |
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Net loss per share - basic |
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$ |
(0.07 |
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$ |
(0.13 |
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$ |
(0.18 |
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$ |
(0.33 |
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Net loss per share - diluted |
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$ |
(0.07 |
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$ |
(0.13 |
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$ |
(0.18 |
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$ |
(0.33 |
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Shares used in per share calculation - basic |
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102,369 |
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98,677 |
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101,677 |
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97,996 |
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Shares used in per share calculation - diluted |
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102,369 |
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98,677 |
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101,677 |
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97,996 |
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See accompanying notes to condensed consolidated financial statements.
4
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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December 31, 2015 |
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December 31, 2014 |
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December 31, 2015 |
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December 31, 2014 |
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Net loss: |
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$ |
(7,234 |
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$ |
(13,105 |
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$ |
(18,760 |
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$ |
(32,435 |
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Other comprehensive loss, net of tax: |
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Available for sale securities: |
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Change in unrealized gains (losses) on available for sale securities, net of taxes |
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— |
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32 |
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— |
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(25 |
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Net change in unrealized gains (losses) on available for sale securities, net of taxes |
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— |
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32 |
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— |
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(25 |
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Net change in foreign currency translation adjustments |
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(421 |
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(654 |
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(1,285 |
) |
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(1,420 |
) |
Other comprehensive loss |
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(421 |
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(622 |
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(1,285 |
) |
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(1,445 |
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Total comprehensive loss |
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$ |
(7,655 |
) |
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$ |
(13,727 |
) |
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$ |
(20,045 |
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$ |
(33,880 |
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See accompanying notes to condensed consolidated financial statements.
5
EXTREME NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Six Months Ended |
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December 31, 2015 |
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December 31, 2014 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(18,760 |
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$ |
(32,435 |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation |
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5,366 |
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6,406 |
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Amortization of intangible assets |
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16,994 |
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17,997 |
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Provision for doubtful accounts and allowance for sales returns |
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2,122 |
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2,520 |
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Stock-based compensation |
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8,616 |
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9,563 |
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Non-cash restructuring charges |
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3,220 |
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— |
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Other non-cash charges |
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(275 |
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512 |
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Changes in operating assets and liabilities, net |
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Accounts receivable |
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15,180 |
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28,624 |
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Inventories |
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1,413 |
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2,679 |
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Prepaid expenses and other assets |
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277 |
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(8 |
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Accounts payable |
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(14,628 |
) |
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8,196 |
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Accrued compensation and benefits |
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3,800 |
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(4,202 |
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Deferred revenue |
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(2,729 |
) |
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608 |
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Deferred distributor revenue, net of cost of sales to distributors |
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(6,874 |
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(811 |
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Other current and long term liabilities |
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245 |
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1,804 |
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Net cash provided by operating activities |
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13,967 |
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41,453 |
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Cash flows from investing activities: |
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Capital expenditures |
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(1,409 |
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(3,962 |
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Proceeds from maturities of investments and marketable securities |
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— |
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3,000 |
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Proceeds from sales of investments and marketable securities |
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— |
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9,051 |
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Purchases of intangible assets |
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— |
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(419 |
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Net cash (used in) provided by investing activities |
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(1,409 |
) |
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7,670 |
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Cash flows from financing activities: |
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Borrowings under Revolving Facility |
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15,000 |
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24,000 |
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Repayment of debt |
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(19,875 |
) |
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(56,438 |
) |
Proceeds from issuance of common stock |
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2,330 |
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1,722 |
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Net cash used in financing activities |
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(2,545 |
) |
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(30,716 |
) |
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Foreign currency effect on cash |
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(373 |
) |
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(2,625 |
) |
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Net increase in cash and cash equivalents |
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9,640 |
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15,782 |
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Cash and cash equivalents at beginning of period |
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76,225 |
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|
73,190 |
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Cash and cash equivalents at end of period |
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$ |
85,865 |
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$ |
88,972 |
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See accompanying notes to the condensed consolidated financial statements.
6
EXTREME NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. |
Description of Business and Basis of Presentation |
Extreme Networks, Inc. (“Extreme Networks” or the “Company”) is a leading provider of network infrastructure equipment and markets its products primarily to business, governmental, health care, service provider, and educational customers with a focus on large corporate enterprises and metropolitan service providers on a global basis. The Company conducts its sales and marketing activities on a worldwide basis through distributors, resellers and the Company’s field sales organization. Extreme Networks was incorporated in California in 1996 and reincorporated in Delaware in 1999.
The unaudited condensed consolidated financial statements of Extreme Networks included herein have been prepared under the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted under such rules and regulations. The condensed consolidated balance sheet at June 30, 2015 was derived from audited financial statements as of that date but does not include all disclosures required by generally accepted accounting principles for complete financial statements. These interim financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015.
The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations and cash flows for the interim periods presented and the financial condition of Extreme Networks at December 31, 2015. The results of operations for the three and six months ended December 31, 2015 are not necessarily indicative of the results that may be expected for fiscal 2016 or any future periods.
Fiscal Year
The Company uses a fiscal calendar year ending on June 30. All references herein to "fiscal 2016" or "2016" represent the fiscal year ending June 30, 2016.
Principles of Consolidation
The consolidated financial statements include the accounts of Extreme Networks and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.
Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but are not limited to, the accounting for the allowances for doubtful accounts and sales returns, determining the fair value of acquired assets and assumed liabilities, estimated selling prices, inventory valuation and purchase commitments, depreciation and amortization, impairment of long-lived assets including goodwill, warranty accruals, restructuring liabilities, measurement of share-based compensation costs and income taxes. Actual results could differ materially from these estimates.
The Company predominantly uses the United States Dollar as its functional currency. The functional currency for certain of its foreign subsidiaries is the local currency. For those subsidiaries that operate in a local currency functional environment, all assets and liabilities are translated to United States Dollars at current month end rates of exchange; and revenue and expenses are translated using the monthly average rate.
Certain balances included in the condensed consolidated statements of cash flows related to restructuring liabilities for prior periods have been reclassified to conform to the current period presentation. In the condensed consolidated statement of cash flows, the changes in operating assets and liabilities for Other long-term liabilities includes the changes in restructuring liabilities and other accrued liabilities which were previously disclosed separately.
7
2. |
Summary of Significant Accounting Policies |
For a description of significant accounting policies, see Note 3, Summary of Significant Accounting Policies, to the consolidated financial statements included in the Company's Annual report on Form 10-K for the fiscal year ended June 30, 2015. There have been no material changes to the Company's significant accounting policies since the filing of the Annual report on Form 10-K.
3. |
Recently Issued Accounting Pronouncements |
For a description of recently issued accounting pronouncements, see Note 4, Recently Issued Accounting Pronouncements, to the consolidated financial statements included in the Company's Annual report on Form 10-K for the fiscal year ended June 30, 2015. The following are accounting pronouncements issued that may materially affect the Company's financial statements since the filing of the Annual report on Form 10-K.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17 (“ASU 2015-17”), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this Update. The amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period and the amendments for ASU-2015-17 can be applied retrospectively or prospectively. The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations.
4. |
Balance Sheet Accounts |
Cash and Cash Equivalents
The following is a summary of cash and available-for-sale securities (in thousands):
|
|
December 31, 2015 |
|
|
June 30, 2015 |
|
||
Cash |
|
$ |
81,096 |
|
|
$ |
71,455 |
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
4,769 |
|
|
$ |
4,770 |
|
Total available-for-sale |
|
$ |
4,769 |
|
|
$ |
4,770 |
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and available for sale securities |
|
$ |
85,865 |
|
|
$ |
76,225 |
|
The Company considers highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Investments with original maturities of greater than three months, but less than one year at the balance sheet date are classified as short-term investments.
Inventory Valuation
The Company’s inventory balances as of December 31 and June 30, 2015 were $56.6 million and $58.0 million, respectively. The Company values its inventory at lower of cost or market. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. The Company has established inventory allowances primarily determined by the age of inventory or when conditions exist that suggest that inventory may be in excess of anticipated demand or is obsolete based upon assumptions about future demand. At the point of the loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. Any written down or obsolete inventory subsequently sold has not had a material impact on gross margin for any of the periods disclosed.
8
The following is a summary of our inventory by category (in thousands):
|
|
December 31, 2015 |
|
|
June 30, 2015 |
|
||
Finished goods |
|
$ |
52,640 |
|
|
$ |
55,301 |
|
Raw materials |
|
|
3,961 |
|
|
|
2,713 |
|
Total Inventory |
|
$ |
56,601 |
|
|
$ |
58,014 |
|
Property and Equipment, Net
Property and equipment consist of the following (in thousands):
|
|
December 31, 2015 |
|
|
June 30, 2015 |
|
||
Computer equipment |
|
$ |
33,943 |
|
|
$ |
32,753 |
|
Purchased software |
|
|
5,671 |
|
|
|
5,425 |
|
Office equipment, furniture and fixtures |
|
|
11,113 |
|
|
|
10,908 |
|
Leasehold improvements |
|
|
20,682 |
|
|
|
24,293 |
|
Total property and equipment |
|
|
71,409 |
|
|
|
73,379 |
|
Less: accumulated depreciation and amortization |
|
|
(38,461 |
) |
|
|
(33,517 |
) |
Property and equipment, net |
|
$ |
32,948 |
|
|
$ |
39,862 |
|
Intangibles
The following tables summarize the components of gross and net intangible asset balances (in thousands):
|
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Amortization |
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|||
|
|
Period |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|||
December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology |
|
0.65 years |
|
$ |
48,000 |
|
|
$ |
36,194 |
|
|
$ |
11,806 |
|
Customer relationships |
|
0.75 years |
|
|
37,000 |
|
|
|
26,722 |
|
|
|
10,278 |
|
Maintenance contracts |
|
2.75 years |
|
|
17,000 |
|
|
|
7,367 |
|
|
|
9,633 |
|
Trademarks |
|
0.75 years |
|
|
2,500 |
|
|
|
1,805 |
|
|
|
695 |
|
Order backlog |
|
0.00 years |
|
|
7,400 |
|
|
|
7,400 |
|
|
|
— |
|
License agreements |
|
9.90 years |
|
|
3,596 |
|
|
|
1,494 |
|
|
|
2,102 |
|
Other intangibles |
|
4.20 years |
|
|
1,426 |
|
|
|
802 |
|
|
|
624 |
|
Total intangibles, net |
|
|
|
$ |
116,922 |
|
|
$ |
81,784 |
|
|
$ |
35,138 |
|
|
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Amortization |
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|||
|
|
Period |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|||
June 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology |
|
1.20 years |
|
$ |
48,000 |
|
|
$ |
28,194 |
|
|
$ |
19,806 |
|
Customer relationships |
|
1.30 years |
|
|
37,000 |
|
|
|
20,556 |
|
|
|
16,444 |
|
Maintenance contracts |
|
3.30 years |
|
|
17,000 |
|
|
|
5,667 |
|
|
|
11,333 |
|
Trademarks |
|
1.30 years |
|
|
2,500 |
|
|
|
1,389 |
|
|
|
1,111 |
|
Order backlog |
|
0.30 years |
|
|
7,400 |
|
|
|
6,967 |
|
|
|
433 |
|
License agreements |
|
10.20 years |
|
|
10,924 |
|
|
|
8,620 |
|
|
|
2,304 |
|
Other intangibles |
|
3.80 years |
|
|
2,684 |
|
|
|
1,983 |
|
|
|
701 |
|
Total intangibles, net |
|
|
|
$ |
125,508 |
|
|
$ |
73,376 |
|
|
$ |
52,132 |
|
Amortization expense for the three months ended December 31, 2015 and 2014, was $8.1 million and $9.0 million, respectively. For the three months ended December 31, 2015 and 2014 amortization expense of $3.8 million and $4.5 million, respectively, is included in “Cost of revenues for products” on the condensed consolidated statements of operations. Amortization expense for the six months ended December 31, 2015 and 2014, was $17.0 million and $18.0 million, respectively. For the six months ended
9
December 31, 2015 and 2014 amortization expense of $8.3 million and $9.1 million, respectively, is included in “Cost of revenues for products” on the condensed consolidated statements of operations. The remainder of the amortization expense is included in “Amortization of intangibles” on the condensed consolidated statement of operations for all periods. The amortization expense that is recognized in “Cost of revenues for products” is comprised of amortization for developed technology, license agreements and other intangibles.
Other Accrued Liabilities
The following are the components of other accrued liabilities (in thousands):
|
|
December 31, 2015 |
|
|
June 30, 2015 |
|
||
Accrued general and administrative costs |
|
$ |
4,383 |
|
|
$ |
1,204 |
|
Restructuring |
|
|
2,588 |
|
|
|
5,854 |
|
Other accrued liabilities |
|
|
22,997 |
|
|
|
25,565 |
|
Total other accrued liabilities |
|
$ |
29,968 |
|
|
$ |
32,623 |
|
Deferred Revenue, Net
Deferred revenue, net represents amounts for (i) deferred services revenue (support arrangements, professional services and training), and (ii) deferred product revenue net of the related cost of revenue when the revenue recognition criteria have not been met.
The following table summarizes deferred revenue, net (in thousands):
|
|
December 31, 2015 |
|
|
June 30, 2015 |
|
||
Deferred services |
|
$ |
84,706 |
|
|
$ |
87,441 |
|
Deferred product and other revenue |
|
|
12,347 |
|
|
|
12,341 |
|
Total deferred revenue |
|
|
97,053 |
|
|
|
99,782 |
|
Less: current portion |
|
|
75,548 |
|
|
|
76,551 |
|
Non-current deferred revenue, net |
|
$ |
21,505 |
|
|
$ |
23,231 |
|
The Company offers for sale to its customers, renewable support arrangements that range from one to five years. Deferred support revenue is included within deferred revenue, net within the services category above. The change in the Company’s deferred support revenue balance in relation to these arrangements was as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
December 31, 2015 |
|
|
December 31, 2014 |
|
|
December 31, 2015 |
|
|
December 31, 2014 |
|
||||
Balance beginning of period |
|
$ |
85,255 |
|
|
$ |
87,012 |
|
|
$ |
87,441 |
|
|
$ |
89,657 |
|
New support arrangements |
|
|
29,773 |
|
|
|
35,517 |
|
|
|
56,819 |
|
|
|
64,056 |
|
Recognition of support revenue |
|
|
(30,322 |
) |
|
|
(31,156 |
) |
|
|
(59,554 |
) |
|
|
(62,340 |
) |
Balance end of period |
|
|
84,706 |
|
|
|
91,373 |
|
|
|
84,706 |
|
|
|
91,373 |
|
Less: current portion |
|
|
63,201 |
|
|
|
67,433 |
|
|
|
63,201 |
|
|
|
67,433 |
|
Non-current deferred revenue |
|
$ |
21,505 |
|
|
$ |
23,940 |
|
|
$ |
21,505 |
|
|
$ |
23,940 |
|
Deferred Distributors Revenue, Net of Cost of Sales to Distributors
The Company records revenue from its distributors on a sell-through basis, recording deferred revenue and deferred cost of sales associated with all sales transactions to its distributors in “Deferred distributors revenue, net of cost of sales to distributors” in the liability section of its condensed consolidated balance sheet. The amount shown as “Deferred distributors revenue, net of cost of sales to distributors” represents the deferred gross profit on sales to distributors based on contractual pricing.
10
The following table summarizes deferred distributors revenue, net of cost of sales to distributors (in thousands):
|
|
December 31, 2015 |
|
|
June 30, 2015 |
|
||
Deferred distributors revenue |
|
$ |
41,653 |
|
|
$ |
53,366 |
|
Deferred cost of sales to distributors |
|
|
(9,976 |
) |
|
|
(12,491 |
) |
Deferred distributors revenue, net of cost of sales to distributors |
|
$ |
31,677 |
|
|
$ |
40,875 |
|
Debt
The Company’s debt is comprised of the following:
|
|
December 31, 2015 |
|
|
June 30, 2015 |
|
||
Current portion of long-term debt: |
|
|
|
|
|
|
|
|
Term Loan |
|
$ |
14,625 |
|
|
$ |
11,375 |
|
Current portion of long-term debt |
|
$ |
14,625 |
|
|
$ |
11,375 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion: |
|
|
|
|
|
|
|
|
Term Loan |
|
$ |
37,375 |
|
|
$ |
45,500 |
|
Revolving Facility |
|
|
10,000 |
|
|
|
10,000 |
|
Total long-term debt, less current portion |
|
|
47,375 |
|
|
|
55,500 |
|
Total debt |
|
$ |
62,000 |
|
|
$ |
66,875 |
|
During fiscal 2015, the Company amended its credit agreement which provides for a five-year revolving credit facility for up to $50.0 million (the “Revolving Facility”) and a $65.0 million five-year term loan (the “Term Loan”) and together with the Revolving Facility the (“Senior Secured Credit Facilities, as amended”).
The Senior Secured Credit Facilities, as amended contains, among others, certain financial covenants that require the Company to maintain defined minimum financial ratios which may limit the Company’s availability to borrowings under the Revolving Facility. As of December 31, 2015, the Company had $32.2 million of availability under the Revolving Facility and is in compliance with its covenants.
The Company had $1.0 million of outstanding letters of credit as of December 31, 2015.
Guarantees and Product Warranties
Networking products may contain undetected hardware or software errors when new products or new versions or updates of existing products are released to the marketplace. In the past, we had experienced such errors in connection with products and product updates. The Company’s standard hardware warranty period is typically 12 months from the date of shipment to end-users and 90 days for software. For certain access products, the Company offers a limited lifetime hardware warranty commencing on the date of shipment from the Company and ending five (5) years following the Company’s announcement of the end of sale of such product. Upon shipment of products to its customers, the Company estimates expenses for the cost to repair or replace products that may be returned under warranty and accrue a liability in cost of product revenue for this amount. The determination of the Company’s warranty requirements is based on actual historical experience with the product or product family, estimates of repair and replacement costs and any product warranty problems that are identified after shipment. The Company estimates and adjusts these accruals at each balance sheet date in accordance with changes in these factors.
11
Upon issuance of a standard product warranty, the Company discloses and recognizes a liability for the obligations it assumes under the product warranty. The following table summarizes the activity related to the Company’s product warranty liability during the three and six months ended December 31, 2015 and 2014:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
December 31, 2015 |
|
|
December 31, 2014 |
|
|
December 31, 2015 |
|
|
December 31, 2014 |
|
||||
Balance beginning of period |
|
$ |
9,244 |
|
|
$ |
7,889 |
|
|
$ |
8,676 |
|
|
$ |
7,551 |
|
New warranties issued |
|
|
2,956 |
|
|
|
1,683 |
|
|
|
5,520 |
|
|
|
3,948 |
|
Warranty expenditures |
|
|
(1,785 |
) |
|
|
(1,727 |
) |
|
|
(3,781 |
) |
|
|
(3,654 |
) |
Balance end of period |
|
$ |
10,415 |
|
|
$ |
7,845 |
|
|
$ |
10,415 |
|
|
$ |
7,845 |
|
To facilitate sales of its products in the normal course of business, the Company indemnifies its resellers and end-user customers with respect to certain matters. The Company has agreed to hold the customer harmless against losses arising from a breach of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. It is not possible to estimate the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material impact on its operating results or financial position.
Advertising
Cooperative advertising expenses are recorded as marketing expenses to the extent that an advertising benefit separate from the revenue transaction can be identified and the cash paid does not exceed the fair value of that advertising benefit received. Cooperative advertising obligations with customers are accrued and the costs expensed at the time the related revenue is recognized. If the Company does not meet the criteria for recognizing such cooperative advertising obligations as marketing expense, the costs are recorded as a reduction of revenue. All other advertising costs are expensed as incurred. Advertising expenses for three and six months ended December 31, 2015 and 2014, were immaterial.
Concentrations
The Company may be subject to concentration of credit risk as a result of certain financial instruments consisting of accounts receivable and short-term investments. The Company does not invest an amount exceeding 10% of its combined cash or cash equivalents in the securities of any one obligor or maker, except for obligations of the United States government, obligations of United States government agencies and money market accounts.
The Company performs ongoing credit evaluations of its customers and generally does not