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EX-32.1 - EX-32.1 - EXTREME NETWORKS INCextr-ex321_9.htm
EX-31.2 - EX-31.2 - EXTREME NETWORKS INCextr-ex312_8.htm
EX-10.1 - EX-10.1 AROLA - EXTREME NETWORKS INCextr-ex101_524.htm
EX-31.1 - EX-31.1 - EXTREME NETWORKS INCextr-ex311_6.htm
EX-10.3 - EX-10.3 R GAULT - EXTREME NETWORKS INCextr-ex103_430.htm
EX-32.2 - EX-32.2 - EXTREME NETWORKS INCextr-ex322_10.htm
EX-10.2 - EX-10.2 GAULT - EXTREME NETWORKS INCextr-ex102_525.htm

 

 

 

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 March 31, 2016      

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)

 

 

 

 

 

 

DELAWARE

 

77-0430270

[State or other jurisdiction

of incorporation or organization]

 

[I.R.S Employer

Identification No.]

 

 

145 Rio Robles,

San Jose, California

 

95134

[Address of principal executive office]

 

[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

 

o

 

Accelerated filer

 

x

 

 

 

 

 

 

 

Non-accelerated filer

 

o  (Do not check if a smaller reporting company)

 

Smaller reporting company

 

o

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 April 22, 2016, was 104,805,158

 

 

 

 


 

EXTREME NETWORKS, INC.

FORM 10-Q

QUARTERLY PERIOD ENDED March 31, 2016

INDEX

 

 

 

 

 

 

PAGE

PART I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited):

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2016 and June 30, 2015

3

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months ended March 31, 2016 and 2015

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months ended March 31, 2016 and 2015

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months ended March 31, 2016 and 2015

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

 

 

 

Item 4.

Controls and Procedures

31

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

Item 1A

Risk Factors

33

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

46

 

 

 

Item 3.

Defaults Upon Senior Securities

46

 

 

 

Item 4.

Mine Safety Disclosure

46

 

 

 

Item 5.

Other Information

46

 

 

 

Item 6.

Exhibits

47

 

 

Signatures

48

 

2


 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

March 31,

2016

 

 

June 30,

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

88,334

 

 

$

76,225

 

Accounts receivable, net of allowances of $5,090 at March 31, 2016 and $2,396 at

   June 30, 2015

 

 

62,670

 

 

 

92,737

 

Inventories

 

 

52,755

 

 

 

58,014

 

Deferred income taxes

 

 

577

 

 

 

760

 

Prepaid expenses and other current assets

 

 

9,710

 

 

 

10,258

 

Total current assets

 

 

214,046

 

 

 

237,994

 

Property and equipment, net

 

 

30,439

 

 

 

39,862

 

Intangible assets, net

 

 

27,425

 

 

 

52,132

 

Goodwill

 

 

70,877

 

 

 

70,877

 

Other assets

 

 

26,204

 

 

 

27,795

 

Total assets

 

$

368,991

 

 

$

428,660

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

16,250

 

 

$

11,375

 

Accounts payable

 

 

21,127

 

 

 

40,135

 

Accrued compensation and benefits

 

 

22,920

 

 

 

25,195

 

Accrued warranty

 

 

10,280

 

 

 

8,676

 

Deferred revenue, net

 

 

76,712

 

 

 

76,551

 

Deferred distributors revenue, net of cost of sales to distributors

 

 

23,933

 

 

 

40,875

 

Other accrued liabilities

 

 

30,182

 

 

 

32,623

 

Total current liabilities

 

 

201,404

 

 

 

235,430

 

Deferred revenue, less current portion

 

 

22,227

 

 

 

23,231

 

Long-term debt, less current portion

 

 

42,500

 

 

 

55,500

 

Deferred income taxes

 

 

3,941

 

 

 

2,979

 

Other long-term liabilities

 

 

8,634

 

 

 

7,285

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Convertible preferred stock, $.001 par value, issuable in series, 2,000,000 shares

   authorized; none issued

 

 

 

 

 

 

Common stock, $.001 par value, 750,000,000 shares authorized; 104,700,580 shares

   issued and outstanding at March 31, 2016 and 100,284,106 shares issued and

   outstanding at June 30, 2015

 

 

105

 

 

 

100

 

Additional paid-in-capital

 

 

881,857

 

 

 

865,282

 

Accumulated other comprehensive loss

 

 

(2,277

)

 

 

(1,291

)

Accumulated deficit

 

 

(789,400

)

 

 

(759,856

)

Total stockholders’ equity

 

 

90,285

 

 

 

104,235

 

Total liabilities and stockholders’ equity

 

$

368,991

 

 

$

428,660

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

3


 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

2016

 

 

March 31,

2015

 

 

March 31,

2016

 

 

March 31,

2015

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

92,711

 

 

$

86,527

 

 

$

289,447

 

 

$

301,700

 

Service

 

 

32,175

 

 

 

33,063

 

 

 

99,325

 

 

 

101,372

 

Total net revenues

 

 

124,886

 

 

 

119,590

 

 

 

388,772

 

 

 

403,072

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

50,240

 

 

 

49,761

 

 

 

154,277

 

 

 

164,282

 

Service

 

 

11,926

 

 

 

12,105

 

 

 

36,382

 

 

 

35,377

 

Total cost of revenues

 

 

62,166

 

 

 

61,866

 

 

 

190,659

 

 

 

199,659

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

42,471

 

 

 

36,766

 

 

 

135,170

 

 

 

137,418

 

Service

 

 

20,249

 

 

 

20,958

 

 

 

62,943

 

 

 

65,995

 

Total gross profit

 

 

62,720

 

 

 

57,724

 

 

 

198,113

 

 

 

203,413

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

18,852

 

 

 

23,858

 

 

 

59,836

 

 

 

71,205

 

Sales and marketing

 

 

38,322

 

 

 

39,226

 

 

 

111,442

 

 

 

127,976

 

General and administrative

 

 

8,957

 

 

 

9,711

 

 

 

27,908

 

 

 

31,091

 

Acquisition and integration costs

 

 

-

 

 

 

1,725

 

 

 

1,145

 

 

 

9,283

 

Restructuring charge, net of reversals

 

 

1,358

 

 

 

-

 

 

 

9,992

 

 

 

-

 

Amortization of intangibles

 

 

4,142

 

 

 

4,467

 

 

 

12,860

 

 

 

13,402

 

Total operating expenses

 

 

71,631

 

 

 

78,987

 

 

 

223,183

 

 

 

252,957

 

Operating loss

 

 

(8,911

)

 

 

(21,263

)

 

 

(25,070

)

 

 

(49,544

)

Interest income

 

 

28

 

 

 

129

 

 

 

84

 

 

 

471

 

Interest expense

 

 

(769

)

 

 

(758

)

 

 

(2,404

)

 

 

(2,419

)

Other income (expense), net

 

 

(266

)

 

 

(535

)

 

 

813

 

 

 

(1,033

)

Loss before income taxes

 

 

(9,918

)

 

 

(22,427

)

 

 

(26,577

)

 

 

(52,525

)

Provision for income taxes

 

 

866

 

 

 

1,121

 

 

 

2,967

 

 

 

3,458

 

Net loss

 

$

(10,784

)

 

$

(23,548

)

 

$

(29,544

)

 

$

(55,983

)

Basic and diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic

 

$

(0.10

)

 

$

(0.24

)

 

$

(0.29

)

 

$

(0.57

)

Net loss per share - diluted

 

$

(0.10

)

 

$

(0.24

)

 

$

(0.29

)

 

$

(0.57

)

Shares used in per share calculation - basic

 

 

104,104

 

 

 

99,783

 

 

 

102,486

 

 

 

98,591

 

Shares used in per share calculation - diluted

 

 

104,104

 

 

 

99,783

 

 

 

102,486

 

 

 

98,591

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

4


 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

2016

 

 

March 31,

2015

 

 

March 31,

2016

 

 

March 31,

2015

 

Net loss:

 

$

(10,784

)

 

$

(23,548

)

 

$

(29,544

)

 

$

(55,983

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gains (losses) on available for sale

   securities, net of taxes

 

 

 

 

(1

)

 

 

 

 

(26

)

Net change in unrealized gains (losses) on available

   for sale securities, net of taxes

 

 

 

 

 

(1

)

 

 

 

 

 

(26

)

Net change in foreign currency translation adjustments

 

 

299

 

 

 

87

 

 

 

(986

)

 

 

(1,333

)

Other comprehensive loss

 

 

299

 

 

 

86

 

 

 

(986

)

 

 

(1,359

)

Total comprehensive loss

 

$

(10,485

)

 

$

(23,462

)

 

$

(30,530

)

 

$

(57,342

)

 

See accompanying notes to condensed consolidated financial statements.

 

 

5


 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

March 31,

2016

 

 

March 31,

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(29,544

)

 

$

(55,983

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

8,204

 

 

 

9,652

 

Amortization of intangible assets

 

 

24,707

 

 

 

26,977

 

Provision for doubtful accounts and allowance for sales returns

 

 

848

 

 

 

4,317

 

Stock-based compensation

 

 

12,120

 

 

 

13,935

 

Non-cash restructuring charges

 

 

4,463

 

 

 

 

Other non-cash charges

 

 

529

 

 

 

628

 

Changes in operating assets and liabilities, net

 

 

 

 

 

 

 

 

Accounts receivable

 

 

26,894

 

 

 

41,620

 

Inventories

 

 

5,259

 

 

 

(9,702

)

Prepaid expenses and other assets

 

 

1,896

 

 

 

806

 

Accounts payable

 

 

(19,520

)

 

 

9,070

 

Accrued compensation and benefits

 

 

(2,275

)

 

 

(6,176

)

Deferred revenue

 

 

(843

)

 

 

(1,331

)

Deferred distributor revenue, net of cost of sales to distributors

 

 

(14,618

)

 

 

3,696

 

Other current and long term liabilities

 

 

793

 

 

 

(3,945

)

Net cash provided by operating activities

 

 

18,913

 

 

 

33,564

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(2,797

)

 

 

(5,610

)

Purchases of non-marketable equity investments

 

 

 

 

 

(3,000

)

Proceeds from maturities of investments and marketable securities

 

 

 

 

 

21,815

 

Proceeds from sales of investments and marketable securities

 

 

 

 

 

9,051

 

Purchases of intangible assets

 

 

 

 

 

(569

)

Net cash (used in) provided by investing activities

 

 

(2,797

)

 

 

21,687

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings under Revolving Facility

 

 

15,000

 

 

 

24,000

 

Repayment of debt

 

 

(23,125

)

 

 

(77,062

)

Proceeds from issuance of common stock

 

 

4,460

 

 

 

2,455

 

Net cash used in financing activities

 

 

(3,665

)

 

 

(50,607

)

 

 

 

 

 

 

 

 

 

Foreign currency effect on cash

 

 

(342

)

 

 

(3,767

)

 

 

 

 

 

 

 

 

 

Net increase  in cash and cash equivalents

 

 

12,109

 

 

 

877

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

76,225

 

 

 

73,190

 

Cash and cash equivalents at end of period

 

$

88,334

 

 

$

74,067

 

 

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 March 31, 2016  The results of operations for the three and nine months ended March 31, 2016 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.

 

 

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.

 

 

7


 

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 March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815) – Contingent Put and Call Options in Debt Instruments, which will reduce diversity of practice in identifying embedded derivatives in debt instruments. ASU 2016-06 clarifies that the nature of an exercise contingency is not subject to the “clearly and closely” criteria for purposes of assessing whether the call or put option must be separated from the debt instrument and accounted for separately as a derivative. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve month term, these arrangements must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. In addition, ASU 2016-02 requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the consolidated financial statements. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities.  The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

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 statements and footnote disclosures.  This guidance will become effective for us beginning with our fiscal year 2018.

 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03 (“ASU 2015-03”) - Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 requires retrospective adoption and will be effect for annual and interim periods in fiscal years beginning after December 15, 2015. The Company does not

8


 

believe adoption of this standard will have a material impact on our financial statements and footnote disclosures.  This guidance will become effective for us beginning with our fiscal year 2017.

 

 

4.

Balance Sheet Accounts

Cash and Cash Equivalents

The following is a summary of cash and available-for-sale securities (in thousands):

 

 

 

March 31,

2016

 

 

June 30,

2015

 

Cash

 

$

83,564

 

 

$

71,455

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

4,770

 

 

$

4,770

 

Total available-for-sale

 

$

4,770

 

 

$

4,770

 

 

 

 

 

 

 

 

 

 

Total cash, cash equivalents and available for sale securities

 

$

88,334

 

 

$

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 March 31, 2016 and June 30, 2015 were $$52.8 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.

The following is a summary of our inventory by category (in thousands):

 

 

 

March 31,

2016

 

 

June 30,

2015

 

Finished goods

 

$

50,027

 

 

$

55,301

 

Raw materials

 

 

2,728

 

 

 

2,713

 

Total Inventory

 

$

52,755

 

 

$

58,014

 

 

Property and Equipment, Net

Property and equipment consist of the following (in thousands):

 

 

 

March 31,

2016

 

 

June 30,

2015

 

Computer equipment

 

$

33,983

 

 

$

32,753

 

Purchased software

 

 

5,941

 

 

 

5,425

 

Office equipment, furniture and fixtures

 

 

10,827

 

 

 

10,908

 

Leasehold improvements

 

 

19,110

 

 

 

24,293

 

Total property and equipment

 

 

69,861

 

 

 

73,379

 

Less: accumulated depreciation and amortization

 

 

(39,422

)

 

 

(33,517

)

Property and equipment, net

 

$

30,439

 

 

$

39,862

 

 

9


 

Intangibles

The following tables summarize the components of gross and net intangible asset balances (dollars in thousands):

 

 

 

Weighted Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining Amortization

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

 

Period

 

Amount

 

 

Amortization

 

 

Amount

 

March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

0.40 years

 

$

48,000

 

 

$

39,611

 

 

$

8,389

 

Customer relationships

 

0.50 years

 

 

37,000

 

 

 

29,806

 

 

 

7,194

 

Maintenance contracts

 

2.50 years

 

 

17,000

 

 

 

8,217

 

 

 

8,783

 

Trademarks

 

0.50 years

 

 

2,500

 

 

 

2,014

 

 

 

486

 

License agreements

 

9.80 years

 

 

3,596

 

 

 

1,583

 

 

 

2,013

 

Other intangibles

 

3.92 years

 

 

1,426

 

 

 

866

 

 

 

560

 

Total intangibles, net

 

 

 

$

109,522

 

 

$

82,097

 

 

$

27,425

 

 

 

 

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

 

 

The following table summarizes the amortization expense of intangibles for the periods presented (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

2016

 

 

March 31,

2015

 

 

March 31,

2016

 

 

March 31,

2015

 

Amortization in "Cost of revenue for products"

 

$

3,572

 

 

$

4,513

 

 

$

11,847

 

 

$

13,575

 

Amortization of intangibles

 

 

4,142

 

 

 

4,467

 

 

 

12,860

 

 

 

13,402

 

Total amortization

 

$

7,714

 

 

$

8,980

 

 

$

24,707

 

 

$

26,977

 

    

 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): 

 

 

March 31,

2016

 

 

June 30,

2015

 

Accrued general and administrative costs

 

$

4,287

 

 

$

1,204

 

Restructuring

 

 

2,199

 

 

 

5,854

 

Other accrued liabilities

 

 

23,696

 

 

 

25,565

 

Total other accrued liabilities

 

$

30,182

 

 

$

32,623

 

 

10


 

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): 

 

 

March 31,

2016

 

 

June 30,

2015

 

Deferred services

 

$

85,069

 

 

$

87,441

 

Deferred product and other revenue

 

 

13,870

 

 

 

12,341

 

Total deferred revenue

 

 

98,939

 

 

 

99,782

 

Less: current portion

 

 

76,712

 

 

 

76,551

 

Non-current deferred revenue, net

 

$

22,227

 

 

$

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

 

 

Nine Months Ended

 

 

 

March 31,

2016

 

 

March 31,

2015

 

 

March 31,

2016

 

 

March 31,

2015

 

Balance beginning of period

 

$

84,706

 

 

$

91,373

 

 

$

87,441

 

 

$

89,657

 

New support arrangements

 

 

27,683

 

 

 

27,198

 

 

 

84,502

 

 

 

91,254

 

Recognition of support revenue

 

 

(27,320

)

 

 

(29,834

)

 

 

(86,874

)

 

 

(92,174

)

Balance end of period

 

 

85,069

 

 

 

88,737

 

 

 

85,069

 

 

 

88,737

 

Less: current portion

 

 

62,842

 

 

 

65,596

 

 

 

62,842

 

 

 

65,596

 

Non-current deferred revenue

 

$

22,227

 

 

$

23,141

 

 

$

22,227

 

 

$

23,141

 

 

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 sheets. 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.

The following table summarizes deferred distributors revenue, net of cost of sales to distributors (in thousands):

 

 

 

March 31,

2016

 

 

June 30,

2015

 

Deferred distributors revenue

 

$

31,367

 

 

$

53,366

 

Deferred cost of sales to distributors

 

 

(7,434

)

 

 

(12,491

)

Deferred distributors revenue, net of cost of sales to distributors

 

$

23,933

 

 

$

40,875

 

 

Debt

The Company’s debt is comprised of the following (in thousands):

 

 

March 31,

2016

 

 

June 30,

2015

 

Current portion of long-term debt:

 

 

 

 

 

 

 

 

Term Loan

 

$

16,250

 

 

$

11,375

 

Current portion of long-term debt

 

$

16,250

 

 

$

11,375

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion:

 

 

 

 

 

 

 

 

Term Loan

 

$

32,500

 

 

$

45,500

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