Extreme Networks, Inc. revenue jumped on 64.4% while EBITDA Margin decreased on 3.2 pp from 4.3% to 1.1%
08/08/2018 • About Extreme Networks, Inc. (
$EXTR) • By InTwits
Extreme Networks, Inc. reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Extreme Networks, Inc. is a fast growth stock: FY2018 revenue growth was 64.4%, 5 year revenue CAGR was 26.8% at FY2018 ROIC -14.9%
- EBITDA Margin is quite volatile: 1.1% in FY2018, 4.3% in FY2017, 3.3% in FY2016, -2.6% in FY2015, -2.1% in FY2014
- Extreme Networks, Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 2.5%. At the same time it's a lot of higher than industry average of 8.7%.
- CAPEX is quite volatile: $40m in FY2018, $10m in FY2017, $5m in FY2016, $7m in FY2015, $22m in FY2014
- The company has unprofitable business model: ROIC is -14.9%
- It operates with high leverage: Net Debt/EBITDA is 7.1x while industry average is -0.5x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Extreme Networks, Inc.'s Revenue jumped on 64.4%. Revenue growth showed slowdown in FY18Q4 - it was 55.7% YoY. During the last 5 years Revenue growth bottomed in FY2016 at -4.4% and was accelerating since that time. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin dropped on 13.5 pp from 8.0% to -5.6% in 2018.
Gross Margin showed almost no change in FY2018. During the last 5 years Gross Margin bottomed in FY2015 at 50.6% and was growing since that time. SG&A as a % of Revenue decreased slightly on 1.2 pp from 33.6% to 32.4% in FY2018. SG&A as a % of Revenue declined at -1.6 pp per annum in the last 5 years.
Net Income margin decreased on 3.3 pp from -1.4% to -4.8% in FY2018.
Investments (CAPEX, working capital and M&A)
In FY2018 the company had CAPEX/Revenue of 4.1%. The company showed CAPEX/Revenue growth of 2.8 pp from 1.3% in FY2015 to 4.1% in FY2018. For the last three years the average CAPEX/Revenue was 2.3%. To secure its fast growth Extreme Networks, Inc. made large investments to CAPEX (373% of EBITDA). During the last 5 years CAPEX as a % of Revenue bottomed in FY2016 at 1.0% and was growing since that time.
Return on investment
The company operates at negative ROIC (-14.9%) and ROE (-42.6%). ROIC dropped on 14.5 pp from -0.41% to -14.9% in FY2018. ROE dropped on 34.0 pp from -8.7% to -42.6% in FY2018.
Leverage (Debt)
Debt level is 7.1x Net Debt / EBITDA and 18.2x Debt / EBITDA. Net Debt / EBITDA jumped on 8.5x from -1.5x to 7.1x in FY2018. Debt jumped on 113% while cash decreased on 7.1%.
Extreme Networks, Inc. has no short term refinancing risk: cash is higher than short term debt (1,344.9%).
Management team
Extreme Networks, Inc.'s CEO Edward B Meyercord III "Ed" is a founder and has spent 4 years with the company.
Financial and operational results
FY ended 06/30/2018
Extreme Networks, Inc. ($EXTR) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 519.6 | 552.9 | 528.4 | 598.1 | 983.1 | 64.4% |
| Gross Profit | 267.3 | 279.7 | 270.8 | 324.5 | 534.5 | 64.7% |
| SG&A | 197.6 | 211.4 | 188.5 | 200.8 | 318.1 | 58.4% |
| EBITDA | -10.8 | -14.2 | 17.6 | 25.6 | 10.8 | -57.6% |
| Net Income | -57.3 | -71.6 | -31.9 | -8.5 | -46.8 | |
Balance Sheet
|
|---|
| Cash | 73.2 | 76.2 | 94.1 | 130.5 | 121.1 | -7.1% |
| Short Term Debt | 29.7 | 11.4 | 17.9 | 12.3 | 9.0 | -26.7% |
| Long Term Debt | 91.9 | 55.5 | 37.6 | 80.4 | 188.7 | 134.7% |
Cash flow
|
|---|
| Capex | 22.4 | 7.2 | 5.3 | 10.4 | 40.4 | 287.6% |
Ratios
|
|---|
| Revenue growth | 73.6% | 6.4% | -4.4% | 13.2% | 64.4% | |
| EBITDA growth | -164.2% | 31.2% | -224.0% | 45.3% | -57.6% | |
|
|---|
| Gross Margin | 51.5% | 50.6% | 51.2% | 54.3% | 54.4% | 0.1% |
| EBITDA Margin | -2.1% | -2.6% | 3.3% | 4.3% | 1.1% | -3.2% |
| SG&A, % of revenue | 38.0% | 38.2% | 35.7% | 33.6% | 32.4% | -1.2% |
| Net Income Margin | -11.0% | -13.0% | -6.0% | -1.4% | -4.8% | -3.3% |
| CAPEX, % of revenue | 4.3% | 1.3% | 1.0% | 1.7% | 4.1% | 2.4% |
|
|---|
| ROIC | -21.3% | -27.6% | -15.6% | -0.4% | -14.9% | -14.5% |
| ROE | -33.1% | -54.9% | -32.8% | -8.7% | -42.6% | -34.0% |
| Net Debt/EBITDA | | | -2.2x | -1.5x | 7.1x | 8.5x |
Extreme Networks, Inc. ($EXTR) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 212 | 231 | 262 | 278 | | 72.7% | 47.8% | 75.6% | 55.7% |
| EBITDA | 12 | -19 | 13 | 5 | | 97.0% | -676.8% | 441.6% | -74.0% |
| Net Income | 4 | -32 | -14 | -6 | | | | | -146.3% |
Balance Sheet
|
|---|
| Cash | 153 | 127 | 103 | 121 | | 49.6% | 22.5% | -12.0% | -7.1% |
| Short Term Debt | 18 | 22 | 25 | 9 | | -7.3% | 123.8% | 121.7% | -26.7% |
| Long Term Debt | 150 | 161 | 154 | 189 | | 359.0% | 84.5% | 83.8% | 134.7% |
Ratios
|
|---|
| Gross Margin | 53.1% | 55.8% | 54.6% | 54.0% | | -0.7% | 4.9% | -0.9% | -3.0% |
| EBITDA Margin | 5.6% | -8.4% | 5.1% | 1.8% | | 0.7% | -10.6% | 3.4% | -9.1% |
| Net Income Margin | 2.1% | -13.8% | -5.2% | -2.0% | | 6.8% | -11.1% | -1.9% | -8.8% |
Peers in Communications Equipment
Below we provide Extreme Networks, Inc. benchmarking against other companies in Communications Equipment industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Ribbon Communications Inc. ($RBBN) | | | | 30.6% | 75.2% |
| Optical Cable Corporation ($OCC) | | -11.3% | -12.2% | -0.8% | 37.0% |
| ParkerVision Inc ($PRKR) | | | 37,601.2% | -97.5% | 35.0% |
| Network-1 Technologies, Inc. ($NTIP) | | 34.6% | 292.9% | -74.7% | 34.4% |
| Arista Networks, Inc. ($ANET) | | 43.4% | 34.8% | 45.8% | 30.7% |
| |
|---|
| Median (66 companies) | | -0.4% | 7.6% | 5.1% | 2.8% |
|---|
| Extreme Networks, Inc. ($EXTR) | | 6.4% | -4.4% | 13.2% | 64.4% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| F5 Networks, Inc. ($FFIV) | 82.1% | 82.7% | 83.1% | 83.1% | 83.3% |
| Radware Ltd. ($RDWR) | 82.1% | 82.4% | 81.8% | 81.3% | 82.2% |
| Radcom Ltd. ($RDCM) | 63.2% | 76.8% | 69.6% | 71.8% | 74.0% |
| Casa Systems, Inc. ($CASA) | | 70.8% | 69.1% | 73.4% | 73.4% |
| NetScout Systems, Inc. ($NTCT) | 78.7% | 79.2% | 65.6% | 70.2% | 72.4% |
| |
|---|
| Median (67 companies) | 41.4% | 41.3% | 43.7% | 41.0% | 40.5% |
|---|
| Extreme Networks, Inc. ($EXTR) | 51.5% | 50.6% | 51.2% | 54.3% | 54.4% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Network-1 Technologies, Inc. ($NTIP) | 35.5% | 33.7% | 50.6% | 37.8% | 42.8% |
| InterDigital, Inc. ($IDCC) | 50.8% | 58.1% | 73.6% | 67.3% | 41.9% |
| EchoStar Corporation ($SATS) | 25.7% | 39.7% | 40.3% | 38.1% | 37.4% |
| Ubiquiti Networks, Inc. ($UBNT) | 34.7% | 25.5% | 37.3% | 34.3% | 32.8% |
| Ituran Location and Control Ltd. ($ITRN) | 32.4% | 30.5% | 29.9% | 29.9% | 30.4% |
| |
|---|
| Median (65 companies) | 5.6% | 6.1% | 5.9% | 6.5% | 5.4% |
|---|
| Extreme Networks, Inc. ($EXTR) | -2.1% | -2.6% | 3.3% | 4.3% | 1.1% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Resonant Inc. ($RESN) | | | 132.5% | 124.8% | 245.2% |
| ViaSat, Inc. ($VSAT) | 22.8% | 26.5% | 26.7% | 33.0% | 32.1% |
| Applied Optoelectronics, Inc. ($AAOI) | 31.5% | 30.1% | 19.0% | 17.5% | 26.9% |
| EchoStar Corporation ($SATS) | 19.7% | 43.8% | 39.9% | 30.9% | 26.5% |
| Finisar Corporation ($FNSR) | 11.3% | 11.9% | 9.4% | 9.7% | 16.8% |
| |
|---|
| Median (65 companies) | 2.2% | 2.3% | 2.0% | 1.9% | 1.6% |
|---|
| Extreme Networks, Inc. ($EXTR) | 4.3% | 1.3% | 1.0% | 1.7% | 4.1% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| F5 Networks, Inc. ($FFIV) | 33.9% | 40.8% | 43.1% | 46.9% | 47.9% |
| Ubiquiti Networks, Inc. ($UBNT) | 61.4% | 31.5% | 41.5% | 38.5% | 39.1% |
| Motorola Solutions, Inc. ($MSI) | -16.1% | 18.9% | 26.4% | 39.5% | 35.3% |
| Ituran Location and Control Ltd. ($ITRN) | 50.9% | 46.8% | 50.1% | 48.5% | 35.1% |
| Casa Systems, Inc. ($CASA) | | | 43.2% | 39.7% | 21.9% |
| |
|---|
| Median (70 companies) | 2.1% | 2.3% | 2.4% | 2.2% | 0.7% |
|---|
| Extreme Networks, Inc. ($EXTR) | -21.3% | -27.6% | -15.6% | -0.4% | -14.9% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| ViaSat, Inc. ($VSAT) | 3.4x | 2.5x | 3.2x | 2.5x | 5.8x |
| CommScope Holding Company, Inc. ($COMM) | 2.3x | 9.6x | 4.3x | 4.6x | 4.4x |
| Inseego Corp. ($INSG) | | | | | 3.9x |
| Finisar Corporation ($FNSR) | -0.3x | 0.2x | -0.5x | 1.6x | 3.8x |
| Harmonic Inc. ($HLIT) | -4.7x | -4.1x | | | 3.4x |
| |
|---|
| Median (45 companies) | -0.7x | -0.7x | -0.8x | -0.6x | -0.3x |
|---|
| Extreme Networks, Inc. ($EXTR) | | | -2.2x | -1.5x | 7.1x |
