Extreme Networks Inc: Form 10-Q for the period ended Mar 31, 2025

This Quarterly Report on Form 10-Q for the third quarter ended March 31, 2025 (this “Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including in particular, our expectations regarding market demands, customer requirements and the general economic environment, future results of operations, and other statements that include words such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and similar expressions. These forward-looking statements involve risks and uncertainties. We caution investors that actual results may differ materially from those projected in the forward-looking statements as a result of certain risk factors identified in the section entitled “Risk Factors” in this Report, our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, and other filings we have made with the Securities and Exchange Commission. These risk factors include, but are not limited to: adverse general economic conditions; fluctuations in demand for our products and services; a highly competitive business environment for network switching equipment; our effectiveness in controlling expenses; the possibility that we might experience delays in the development or introduction of new technology and products; customer response to our new technology and products; fluctuations in the global economy, including as a result of political, social, economic, and regulatory factors, currency fluctuations, and tariff and trade policies; geopolitical tensions and conflicts; risks related to pending or future litigation and a dependency on third parties for certain components and for the manufacturing of our products.

Business Overview

The following discussion is based upon our unaudited condensed consolidated financial statements included elsewhere in this Report. In the course of operating our business, we routinely make decisions as to the timing of the payment of invoices, the collection of receivables, the manufacturing and shipment of products, the fulfillment of orders, the purchase of supplies, and the building of inventory and service parts, among other matters. Each of these decisions has some impact on the financial results for any given period. In making these decisions, we consider various factors, including contractual obligations, customer satisfaction, competition, internal and external financial targets and expectations, and financial planning objectives. For further information about our critical accounting policies and estimates, see the “Critical Accounting Policies and Estimates” section included in this “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

Extreme Networks, Inc. (“Extreme” or “Company”) is a leading provider of cloud networking with integrated security and Artificial Intelligence (“AI”) solutions along with industry leading services and support. Extreme designs, develops, and manufactures wired, wireless, and software-defined wide area-network (“SD-WAN”) infrastructure equipment, software and cloud-based network management solutions and security and AI software solutions. The Company’s Platform ONETM solution, announced in December 2024, is a technology platform that reduces the complexity for enterprises by seamlessly integrating networking, security and AI solutions into a single platform. AI-powered automation includes conversational, interactive and autonomous AI agents—to assist, advise and accelerate the productivity of networking, security and business teams—reducing the time to complete complex tasks.

Our global footprint provides service to some of the world’s leading names in business, hospitality, retail, transportation and logistics, education, government, healthcare, manufacturing and service providers. We derive all our revenues from the sale of our networking equipment, software subscriptions, and related maintenance contracts.

Industry Background

Enterprises across every industry are going through unprecedented changes, such as digital transformation initiatives, migrating their workloads to cloud-based environments, modernizing applications, finding new ways to leverage generative AI (“GenAI”) technology, and adapting to a distributed workforce. To accomplish this, they are adopting new Information Technology (“IT”) delivery models and applications that require fundamental network alterations and enhancements spanning from the access edge to the data center. As networks become more complex and more distributed in nature, we believe IT teams in every industry will need more control and better insights than ever before to deliver secure, distributed connectivity and comprehensive centralized visibility. Networking is mission critical and touches all elements of how services are delivered to customers, employees, students, and patients. Managing networks from a single platform that integrates AI networking and security is critical to help reduce complexity and minimize the time it takes to complete tasks.

As the edge of the network continues to expand, our customers are managing more endpoints which comes with a host of challenges. This continued expansion creates issues such as a higher risk of cyberattacks and a need for more bandwidth as a result of an increase in applications running across the network.

Network complexity manifests itself in the form of more endpoints to manage, more applications to monitor, and more services that rely on the network for service delivery and enablement. When performance suffers, and the tug on internal systems and IT staff becomes more intense, technology is often being overworked. Resolving network problems expeditiously and identifying their root cause can improve organizational productivity and result in higher performance of operations.

We believe that the network has never been more vital than it is today. As administrators grapple with more data, coming from more places, more connected devices, and more Software-as-a-Service (“SaaS”) based applications, the cloud is fundamental to managing and maintaining a modern network. Traditional network offerings are not well-suited to fulfill enterprise expectations for rapid delivery of new services, more flexible business models, real-time response, and massive scalability. We expect Platform ONE’s new capabilities to deliver significant productivity gains for IT teams by streamlining network design, deployment, management, and commercial operations.

As enterprises continue to migrate increasing numbers of applications and services to either private clouds or public clouds offered by third parties and to adopt new IT delivery models and applications, they are required to make fundamental network alterations and enhancements spanning from device access points (“APs”) to the network core. In either case, the network infrastructure must adapt to this new dynamic environment. Intelligence and automation are key if enterprises are to derive maximum benefit from their cloud deployments. With automation applications becoming increasingly critical in manufacturing, warehousing, logistics, healthcare and other key industries, we believe this will continue to create demand for networking technology to serve as a foundation to run these services.

Service providers are investing in network enhancements with platforms and applications that deliver data insights, provide flexibility, and can quickly respond to new user demands and 5G use cases.

We believe Extreme will continue to benefit from the use of its technology to manage distributed campus network architecture centrally from the cloud. Extreme has blended a dynamic network fabric architecture that delivers simplicity for moves and changes at the edge of the network together with corporate-wide role-based policy. This enables customers to migrate to new cloud-managed switching, Wi-Fi, and SD-WAN, agnostic of the existing switching or wireless equipment they already have installed. In the end, we expect these customers to see lower operating and capital expenditures, lower subscription costs, lower overall cost of ownership, and more flexibility, along with a more resilient network.

We estimate the total addressable market for our Enterprise Networking solutions consisting of cloud networking, wireless local area networks (“WLAN”), data center networking, ethernet switching, campus local area networks (“LAN”), SD-WAN solutions and management, automation, and elements of the Secure Access Services Edge (“SASE”) market to be over $47 billion, and growing at approximately 13% annually over the next five years based on data from the 650 Group, Gartner, IDC, and Dell'Oro. This comprises over $36 billion for networking and infrastructure spanning enterprise and service provider (largely 5G) applications, and $11 billion for networking cloud and security software, which is expected to grow to $31 billion by 2028.

The Extreme Strategy

We are driven to help our customers find new ways to deliver better outcomes. Extreme empowers organizations with new ways to simply and securely connect with Extreme's intelligent technology platform to help move their organizations forward.

Extreme Platform ONE will reduce complexity for enterprises by seamlessly integrating networking, security and AI solutions. The platform’s AI-powered automation includes conversational, interactive and autonomous AI agents, to assist, advise and accelerate the productivity of networking, security and business teams—reducing the time to complete complex tasks. Extreme Platform ONE is also designed to offer the industry's simplest licensing.

Key elements of Extreme’s strategy and differentiation include:

• Provide a differentiated end-to-end cloud networking architecture. Cloud networking is estimated to be an $11 billion segment of the networking market comprising cloud managed services and cloud-managed products, which are largely WLAN access points and ethernet switches, growing at 14% annually over the next five years, according to data from the 650 Group, Gartner, IDC, and Dell'Oro. Cloud management technology has evolved significantly over the past decade. We believe we deliver a combination of innovation, reliability, and security with the leading end-to-end cloud management platform powered by machine learning (“ML”) and AI that spans from the Internet of Things (“IoT”) edge to the enterprise data center. Key characteristics of our cloud architecture include:
• A robust cloud management platform that delivers visibility, intelligence, and assurance from the network edge to the core.
• Cloud Choice for customers: Our cloud networking solution is available on all major cloud providers (Amazon Web Services (“AWS”), Google Cloud Platform (“GCP”) and Microsoft Azure).
• The ExtremeCloud IQ: Our cloud platform conforms to ISO/IEC 27017, ISO/IEC 27001 and ISO/IEC 27701 standards for data privacy and protection as set forth by the International Standards Organization (“ISO”), and is CSA STAR certified.
• Cloud Continuum: Provides hosting flexibility across a range of options including public, private, and on-premises edge cloud options.
• Consumption Flexibility: Offer a range of financing and network purchase options. Our value-based subscription tiers provide customers with flexibility to grow, as well as offer pool-able and portable licenses that can be transferred between products (e.g. access points and switches) at one fixed price.
• Offer customers choice: public or private cloud, or on-premises. We leverage the cloud where it makes sense for our customers and provide on-premises solutions where customers need it and also have a solution for those who want to harness the power of both. Our hybrid approach gives our customers options to adapt the technology to their business. At the same time, all of our solutions have visibility, control and strategic information built in, all tightly integrated with a single view across all of the installed products. Our customers can understand what is going on across their network and applications in real time – who, when, and what is connected to the network, which is critical for bring your own device (“BYOD”) and IoT usage.
• Highest value of cloud management subscriptions. ExtremeCloud IQ provides unified cloud-native management driven by AI and ML for wireless access points, wired switches, network security and SD-WAN solutions. It features intuitive configuration workflows, real-time and historical monitoring, comprehensive troubleshooting, and integrated network applications for Extreme customers. The innovative ML technologies of ExtremeCloud IQ analyze and interpret millions of network and user data points, from the edge to the data center, to power actionable business and IT insights. The platform streamlines operations by delivering new levels of network automation and intelligence. The ExtremeCloud IQ Pilot license tier streamlines every aspect of network management from deployment and maintenance to problem resolution. The Pilot license includes key capabilities for guest management, WIPS, and location services with associated services: ExtremeGuest, ExtremeAirDefense, and ExtremeLocation.
• ExtremeGuest™ is a comprehensive guest engagement solution that enables IT administrators to use analytical insights to engage visitors with personalized engagements.
• Extreme AirDefense™ is a comprehensive wireless intrusion prevention system (“WIPS”) that simplifies the protection, monitoring and security of wireless networks. With the added Bluetooth and Bluetooth low energy intrusion prevention, network administrators can address growing threats against Bluetooth and Bluetooth low energy devices.
• ExtremeLocation™ delivers proximity, presence and location-based services for advanced contact tracing in support of the location-intelligent enterprise.
• Additional AI Capabilities in ExtremeCloud IQ. The ExtremeCloud IQ CoPilot license tier is an add-on to the Pilot license tier. It includes all the capabilities of the ExtremeCloud Pilot and Navigator license tiers. CoPilot serves as more than a centralized point of management with AIOps and other enhancements to network management and automation. It is a trusted digital advisor for your Extreme cloud-managed Wi-Fi networks that proactively reduces risk and provides the fastest time to the best experience. This includes advanced anomaly detection and capabilities to ensure the user experience of wireless and wired devices.
• Offers universal platforms for enterprise class switching and wireless infrastructure. Extreme offers universal platforms which support multiple deployment use cases, providing flexibility and investment protection.
• Universal switches (7720/5720/5520/5420/5320/4220/4120) support fabric or traditional networking with a choice of cloud or on-premises (air-gapped or cloud connected) management.
• Universal Wi-Fi 6/6E APs (300/400, 4000 and 5000 series) support campus or distributed deployments with a choice of cloud or on-premises (air-gapped or cloud connected) management.
• Universal licensing with one portable management license for any device and for any type of management. For switches, operating system feature licenses are portable, and bulk activated through ExtremeCloud IQ.
• AI is a dynamic tool and is leveraged to drive productivity across our company and to offer security and GenAI solutions to our customers. Extreme’s journey in AI began in 2020 with the advent of machine learning and purpose-built AI. We then introduced Co-Pilot AIOps in 2022 to further enhance network performance and troubleshooting. Today we have the next exciting chapter – Extreme AI Expert – a GenAI solution that will help optimize networks, provide better design, improve mean time to resolution for technical issues, and create cost savings in the overall design and implementation of networks. We are utilizing AI to improve mean time to resolution for customers, both through our AIOps offerings as well as internal use of Extreme AI Expert. We announced a technology preview of our Extreme AI Expert showcasing its ability to speed up documentation searches and resolution of network performance issues. This allows our customers to optimize their network performance and make it easier to focus on value-added activities.
• Provide a new enterprise connectivity platform - Extreme Platform ONE. In February 2025, Extreme launched what we believe is the industry's leading multi-tenant architecture and consumption-based billing model for managed service providers,

with poolable licensing, which creates significant benefits and cost savings for partners and customers alike. In the second half of the calendar year 2025, Extreme will integrate networking and security with AI into one simplified experience so organizations can manage and secure the network faster and more efficiently than ever into Platform ONE for end customers that will provide:

• One integrated experience for everyone in an organization, from Network Operations (“NetOps”), Security Operations (“SecOps”), and business teams, to access just what they need to do their best work from a fully customizable workspace.
• Automation enhanced with built-in AI. With Extreme AI Expert, Network Operations NetOps can swiftly resolve anomalies, while SecOps can easily set and update access policies, and Business teams can manage finance, procurement, and compliance. All teams accelerate learning, planning, delivery, management, analysis, and governance.
• Simplified licensing - Extreme Platform ONE will be as easy to buy and renew as it is to use through co-termed contracts, industry-leading support services, and the integration of AI Expert.
• AI capabilities in Extreme Platform ONE. There are several ways customers will be able to leverage our AI in the future as part of Extreme Platform ONE:
• Knowledge queries provide the ability to answer any question in context (i.e., role, application, conversation). Questions are answered with Extreme’s product documentation, Global Technical Assistance Center knowledge base and selected training, and best practices material.
• Intelligent Queries are answered with customer network data from multiple applications (ExtremeCloud IQ, SD-WAN, etc.).
• “What-If” Queries give the ability for the system to work autonomously and optimize itself based on business key performance indicators (“KPIs”). These scenarios work on an on-demand, scheduled, or always-on basis. Predictive and scenario questions that are answered apply further processing to the network data, anomaly detections, pattern recognition, root cause analysis, predictive analytics and network optimization.
• Enable a common fabric to simplify and automate the network. Fabric technologies virtualize the network infrastructure (decoupling network services from physical connectivity) which enables network services to be turned up faster, with lower likelihood of error. They make the underlying network much easier to design, implement, manage, and troubleshoot.
• Offer a frictionless experience for secure hybrid work. Our layered security approach is managed from one cloud and secure by design. We offer tightly integrated security with network fabric and infrastructure.
• ExtremeCloud Universal ZTNA. Universal ZTNA is the first network security offering to integrate network, application, and device security within a single solution. By combining Cloud Network Access Control (“NAC”) and Zero Trust Network Authentication (“ZTNA”) into a single, easy-to-use SaaS offering, we help customers ensure unified observability, frictionless user experiences and a consistent security policy for applications and devices, as well as support secure hybrid work use cases for customers. As the virtual private network market transitions to ZTNA, the proliferation of individual applications, each with their own policy and dashboard, is adding complexity and expense for enterprise customers. We expect the broadening of our security offering to drive significant traction for our business with growth opportunities.
• Extreme’s unique and highly differentiated network fabric makes it simple to orchestrate applications and policy across the entire campus, from the core to the wireless edge, and across the wide area network. We bring enhanced security, the ability to segment networks and zero touch provisioning, thus eliminating confusion, complexity and the need for additional IT staff. This is in stark contrast to our competitors’ fabric solutions, which were designed for service providers and data center networks and not meant for the campus.
• Extreme AirDefense delivers intrusion detection and prevention capabilities across the wireless portfolio.
• End-to-End Portfolio. Our cloud-driven solutions provide visibility, control, and strategic intelligence from the edge to the data center, across networks and applications. Our solutions include wired switching, wireless switching, wireless access points, WLAN controllers, routers, and an extensive portfolio of software applications that deliver AI-enhanced access control, network and application analytics, as well as network management. All can be managed, assessed and controlled from a single pane of glass on premises or from the cloud.
• Provide high-quality insourced customer service and support. We seek to enhance customer satisfaction and build customer loyalty through high-quality service and support. This includes a wide range of standard support programs to the level of service our customers require, from standard business hours to global 24-hour-a-day, 365-days-a-year real-time responsive support.
• Extend switching and routing technology leadership. Our technological leadership is based on innovative switching, routing and wireless products, the depth and focus of our market experience, and our operating systems- the software that runs on all of our networking products. Our products reduce operating expenses for our customers and enable a more flexible and dynamic network environment that will help them meet the upcoming demands of IoT, mobile, and cloud.
• Expand Wi-Fi technology leadership. Wireless is today’s network access method of choice, and every business must deal with scale, density and BYOD challenges. The network edge landscape is changing as the explosion of mobile and IoT devices increases the demand for high-performance, transparent, and always-on wired to wireless edge services. The unified access layer requires distributed intelligent components to ensure that access control and resiliency of business services are available across the entire infrastructure and manageable from a single console. We are at a technology inflection point with the pending migration from Wi-Fi 6 solutions to 6 GHz Wi-Fi (Wi-Fi 6E and Wi-Fi 7), focused on providing more efficient access to the broad array of connected devices. We believe we have the industry’s broadest 6 GHz indoor and outdoor wireless portfolio, providing intelligence and security for wired/wireless networks by leveraging our cloud architecture, end-to-end fabric services, Universal ZTNA, and AIOps management platform with Explainable ML insights.
• Offer a superior quality of experience. Our network-powered application analytics provide actionable business insights by capturing and analyzing context-based data about the network and applications to deliver meaningful intelligence about applications, users, locations, and devices. With an easy-to-comprehend dashboard, our applications help businesses turn their network into a strategic business asset that helps executives make faster and more effective decisions.
• Expand market penetration by targeting high-growth market segments. Within the campus, we focus on the mobile user, leveraging our automation capabilities and tracking WLAN growth. Our data center approach leverages our product portfolio to address the needs of public and private cloud data center providers. We believe that the cloud networking compound annual growth rate will continue to outpace the compound annual growth rate for on-premises managed networking. Our focus is on expanding our technology foothold in the critical cloud networking segment to accelerate not only cloud management adoption, but also subscription-based licensing consumption.
• Leverage and expand multiple distribution channels. We distribute our products through select distributors, a large number of resellers and system-integrators worldwide, as well as several large strategic partners. We maintain a field sales force to support our channel partners and to sell directly to certain strategic accounts. As an independent networking vendor, we seek to provide products that, when combined with the offerings of our channel partners, create compelling solutions for end-user customers.
• Maintain and extend our strategic relationships. We have established strategic relationships with a number of industry-leading vendors to both provide increased and enhanced routes to market, and collaboratively develop unique solutions.

Results of Operations

During the third quarter of fiscal 2025, we achieved the following results:

• Net revenues of $284.5 million compared to $211.0 million in the third quarter of fiscal 2024.
• Product revenues of $178.1 million compared to $106.4 million in the third quarter of fiscal 2024.
• Subscription and support revenues of $106.4 million compared to $104.6 million in the third quarter of fiscal 2024.
• Total gross margin of 61.7% of net revenues compared to 56.8% of net revenues in the third quarter of fiscal 2024.
• Operating income of $10.4 million compared to operating loss of $62.5 million in the third quarter of fiscal 2024.
• Net income of $3.5 million compared to net loss of $64.4 million in the third quarter of fiscal 2024.

During the first nine months of fiscal 2025, we reflected the following results:

• Cash flows provided by operating activities of $70.1 million compared to $40.0 million in the nine months ended March 31, 2024.
• Cash and cash equivalents of $185.5 million as of March 31, 2025 compared to $156.7 million as of June 30, 2024.

Net Revenues

The following table presents net product and subscription and support revenues for the periods presented (in thousands, except percentages):

We generate product revenues primarily from sales of our networking equipment. We derive subscription and support revenues primarily from sales of our subscription and support offerings which include SaaS offerings, maintenance contracts, professional services and training for our products.

Product revenues increased $71.6 million or 67.3% for the three months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. The increase in product revenues was primarily driven by higher shipments than in the corresponding period in fiscal 2024 which was impacted by elongated sales cycles to end customers and lower channel sell-through caused by macroeconomic conditions. Product revenues decreased $33.9 million or 6.2% for the nine months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. The decrease in product revenues was primarily driven by higher shipments in the corresponding period in fiscal 2024 due to the release of product backlog resulting from the easing of supply chain constraints.

Subscription and support revenues increased $1.9 million or 1.8% for the three months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. Subscription and support revenues increased $6.4 million or 2.1% for the nine months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. The increases in subscription and support revenues were primarily due to higher subscription revenue.

The following table presents the product and subscription and support gross profit and the respective gross profit percentages for the periods presented (in thousands, except percentages):

Product gross profit increased $56.4 million or 123.7% for the three months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. The increase in product gross profit was primarily due to higher product revenues and lower reserves for excess and obsolete inventories, partially offset by higher overhead and distribution costs.

Product gross profit decreased $1.1 million or 0.4% for the nine months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. The decrease in product gross profit was primarily due to lower product revenues and increased overhead costs, partially offset by lower reserves for excess and obsolete inventory.

Subscription and support gross profit decreased $0.9 million or 1.2% for the three months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. The decrease in subscription and support gross profit was primarily due to higher subscription hosting costs.

Subscription and support gross profit increased $5.0 million or 2.2% for the nine months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. The increase in subscription and support gross profit was primarily due to increased subscription revenues, partially offset by higher subscription hosting costs.

Operating Expenses

The following table presents operating expenses for the periods presented (in thousands, except percentages):

Research and Development Expenses

Research and development expenses consist primarily of personnel costs (which consist of compensation, benefits and share-based compensation), consultant fees and prototype expenses related to the design, development, and testing of our products.

Research and development expenses increased by $1.1 million or 2.1% for the three months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. The increase in research and development expenses was primarily due to a $1.1 million increase in personnel costs due to higher headcount and higher compensation and benefits costs, a $0.7 million increase in engineering project costs, and a $0.5 million increase in other expenses primarily consisting of software costs, partially offset by a $1.2 million decrease in contractor costs.

Research and development expenses decreased by $0.4 million or 0.2% for the nine months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. The decrease in research and development expenses was primarily due to a $7.0 million decrease in contractor costs, partially offset by a $3.0 million increase in personnel costs due to higher headcount and higher compensation and benefits costs, a $1.6 million increase in information and technology and facilities related costs, and a $2.0 million increase in other expenses primarily consisting of recruiting and professional fees.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel costs (which consist of compensation, benefits and share-based compensation), as well as trade shows and promotional expenses.

Sales and marketing expenses decreased by $7.9 million or 9.0% for the three months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. The decrease in sales and marketing expenses was primarily due to a $4.3 million decrease in personnel costs primarily due to lower headcount, a $2.4 million decrease in other expenses primarily related to marketing expenses for trade shows and information technology and facilities expenses, and a $1.2 million decrease in professional fees.

Sales and marketing expenses decreased by $23.7 million or 8.9% for the nine months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. The decrease in sales and marketing expenses was primarily due to a $16.7 million decrease in personnel costs due to lower headcount, a $2.7 million decrease in information technology and facilities costs, a $2.8 million decrease in contractor costs and professional services costs, and a $1.5 million decrease in travel expenses.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs (which consist of compensation, benefits and share-based compensation), legal and professional service costs, and facilities and information technology costs.

General and administrative expenses increased by $4.3 million or 17.1% for the three months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. The increase in general and administrative expenses was primarily due to a $6.7 million increase in system transition costs, partially offset by a $1.5 million decrease in legal costs related to litigation matters, net of insurance recoveries, and a $0.9 million decrease in professional fees.

General and administrative expenses increased by $17.7 million or 23.8% for the nine months ended March 31, 2025 as compared to the corresponding period in fiscal 2024. The increase in general and administrative expenses was primarily due to a $14.5 million increase in system transition costs and a $7.3 million increase in legal costs related to litigation matters, net of insurance recoveries, partially offset by a $3.7 million decrease in professional fees, and a $0.4 million decrease in other costs related to recruiting fees and advertising.

Restructuring and Related Charges

For the three and nine months ended March 31, 2025, we recorded restructuring benefit of $0.4 million and restructuring charges of $1.9 million, respectively, which primarily consisted of additions to severance and benefits costs and professional services fees as well as reversals of previously established accruals related to unused severance benefits associated with the reduction-in-force actions related to the “Q2 2024 Plan”, and “Q3 2024 Plan”, each as described in Note 13, Restructuring and Related Charges, in Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report.

For the three and nine months ended March 31, 2024, we recorded restructuring and related charges of $14.4 million and $26.3 million, which primarily consisted of severance and benefits costs and professional services fees associated with the reduction-in-force actions related to the “Q1 2024 Plan”, “Q2 2024 Plan”, and “Q3 2024 Plan”.

Amortization of Intangible Assets

During the three months ended March 31, 2025 and 2024, we recorded $0.5 million of operating expenses for each period related to the amortization of intangible assets.

During the nine months ended March 31, 2025 and 2024, we recorded $1.5 million of operating expenses for each period related to the amortization of intangible assets.

Interest Income

During the three months ended March 31, 2025 and 2024, we recorded $1.0 million and $1.2 million, respectively, in interest income. The decrease in interest income was primarily related to the lower interest earned on our cash accounts due to lower cash and cash equivalents balances held during the third quarter in fiscal 2025.

During the nine months ended March 31, 2025 and 2024, we recorded $2.7 million and $3.9 million, respectively, in interest income. The decrease in interest income is primarily related to the lower interest earned on our cash accounts due to lower cash and cash equivalents balances held during the first three quarters of fiscal 2025.

Interest Expense

During the three months ended March 31, 2025 and 2024, we recorded $3.8 million and $4.2 million, respectively, in interest expense related to the debt obligations held under our Amended Credit Agreement. The decrease in interest expense was primarily due to lower average rates under the Amended Credit Agreement.

During the nine months ended March 31, 2025 and 2024, we recorded $12.4 million and $12.8 million, respectively, in interest expense related to the debt obligations held under the Amended Credit Agreement. The decrease in interest expense was primarily due to lower average rates under the Amended Credit Agreement.

Other Income (Expense), Net

During the three months ended March 31, 2025 and 2024, we recorded other expense, net of $0.4 million and other income, net of $0.4 million, respectively. The other income (expense), net for each period primarily related to the foreign exchange impact from the revaluation of certain assets and liabilities denominated in foreign currencies into U.S. Dollars.

During the nine months ended March 31, 2025 and 2024, we recorded other expense, net of $0.4 million and other income, net of $0.4 million, respectively. The other income (expense), net for each period primarily related to the foreign exchange impact from the revaluation of certain assets and liabilities denominated in foreign currencies into U.S. Dollars.

Provision for Income Taxes

For the three months ended March 31, 2025 and 2024, we recorded income tax provision of $3.7 million and an income tax benefit of $0.6 million, respectively.

For the nine months ended March 31, 2025 and 2024, we recorded income tax provision of $7.8 million and $7.0 million, respectively.

The income tax provisions for the three and nine months ended March 31, 2025 and 2024 consisted of (1) taxes on the income of our foreign subsidiaries, (2) state taxes in jurisdictions where we have no remaining state net operating losses, (3) foreign withholding taxes, and (4) tax expense associated with the establishment of a U.S. deferred tax liability for amortizable goodwill resulting from the acquisition of Enterasys Networks, Inc., the WLAN business from Zebra Technologies Corporation, the Campus Fabric Business from Avaya LLC and the Data Center Business from Brocade Communications System. In addition, the income tax provision for each of the three and nine months ended March 31, 2025 includes U.S. federal income tax expense of $1.5 million.

Critical Accounting Policies and Estimates

Our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Report are prepared in accordance with accounting principles generally accepted in the United States. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted under SEC rules and regulations. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. On an ongoing basis, we evaluate our estimates and assumptions. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.

As discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2024, we consider the following accounting policies to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements:

• Revenue Recognition
• Inventory Valuation and Purchase Commitments

There have been no changes to our critical accounting policies since the filing of our last Annual Report on Form 10-K.

Liquidity and Capital Resources

The following table summarizes information regarding our cash and cash equivalents (in thousands):

As of March 31, 2025, our principal sources of liquidity consisted of cash and cash equivalents of $185.5 million, accounts receivable, net of $99.5 million, and available borrowings under our 2023 Revolving Facility of $135.8 million. Our principal uses of cash include the purchase of finished goods inventory from our contract manufacturers, payroll and other operating expenses related to the development and marketing of our products, purchases of property and equipment, and repayments of debt and related interest and share repurchases. We believe that our $185.5 million of cash and cash equivalents at March 31, 2025, our cash flow from operations and the availability of borrowings from the 2023 Revolving Facility will be sufficient to fund our planned operations for at least the next 12 months and into the foreseeable future.

On February 18, 2025, we announced that our Board had authorized management to repurchase up to $200 million shares of the Company's common stock over a three-year period, commencing July 1, 2025 (the “2025 Repurchase Program”). As of March 31, 2025, we had approximately $37.3 million remaining from the $200.0 million share repurchase authorization approved in May 2022 (the “2022 Repurchase Program”), which expires on June 30, 2025. Under these repurchase programs, purchases may be made from time to time in the open market or pursuant to a 10b5-1 plan. The manner, timing and amount of any future purchases will be determined by our management based on their evaluation of market conditions, stock price, Extreme’s ongoing determination that it is the best use of available cash and other factors. Neither of the 2022 Repurchase Program or the 2025 Repurchase Program obligate us to acquire any shares of our common stock, and they may be suspended or terminated at any time without prior notice and will be subject to regulatory considerations. During the three and nine months ended March 31, 2025, we repurchased a total of 853,247 shares of our common stock on the open market at a total cost of $13.0 million with an average price of $15.24 per share.

On August 9, 2019, we entered into an Amended and Restated Credit Agreement (the “2019 Credit Agreement”), by and among Extreme, as borrower, several banks and other financial institutions as Lenders, BMO Harris Bank N.A., as an issuing lender and swingline lender, Silicon Valley Bank, as an Issuing Lender, and Bank of Montreal, as administrative agent and collateral agent for the Lenders.

On June 22, 2023, we entered into the Second Amended and Restated Credit Agreement (the “2023 Credit Agreement”) by and among Extreme, as borrower, BMO Harris Bank, N.A., as an issuing lender and swingline lender, Bank of America, N.A., JPMorgan Chase Bank, N.A., PNC Bank, National Association and Wells Fargo Bank, National Association, as issuing lenders, the financial institutions or entities party thereto as lenders, and Bank of Montreal, as an administrative agent and collateral agent, which amended and restated the 2019 Credit Agreement. The 2023 Credit Agreement provides for i) a $200.0 million first lien term loan facility in an aggregate principal amount (the “Term Facility”), ii) a $150.0 million five-year revolving credit facility (the “2023 Revolving Facility”) and iii) an uncommitted additional incremental loan facility in the principal amount of up to $100.0 million plus an unlimited amount that is subject to pro forma compliance with a specified Consolidated Leverage Ratio tests. We may use the proceeds of the loans for working capital and general corporate purposes.

At our election, the initial term loan (the “Initial Term Loan”) under the 2023 Credit Agreement may be made as either a base rate loan or a Secured Overnight Financing Data Rate loan (“SOFR loan”). The applicable margin for base rate loans ranges from 1.00% to 1.75% per annum, and the applicable margin for SOFR loans ranges from 2.00% to 2.75%, in each case based on the Company’s Consolidated Leverage Ratio. All SOFR loans are subject to a floor of 0.00% per annum and spread adjustment of 0.10% per annum. We also agreed to pay other closing fees, arrangement fees, and administration fees.

The 2023 Credit Agreement requires us to maintain certain minimum financial ratios at the end of each fiscal quarter. The 2023 Credit Agreement also includes covenants and restrictions that limit, among other things, our ability to incur additional indebtedness, create liens upon any of its property, merge, consolidate or sell all or substantially all of its assets. The 2023 Credit Agreement also includes customary events of default which may result in acceleration of the outstanding balance.

On August 14, 2024, we entered into an Amendment Number One to the 2023 Credit Agreement the (the 2023 Credit Agreement as amended by that certain Amendment Number One, “Amended Credit Agreement”). Under the Amended Credit Agreement, we modified the definition of the consolidated EBITDA for the purposes of evaluating compliance with financial covenants under the Amended Credit Agreement. The amended definition of consolidated EBITDA modifies the amount and type of add-backs that are allowable to better align with our operations and activities.

During the three and nine months ended March 31, 2025, the Company was in compliance with the modified terms and financial covenants under the Amended Credit Agreement.

Key Components of Cash Flows and Liquidity

A summary of the sources and uses of cash and cash equivalents is as follows (in thousands):

Net Cash Provided by Operating Activities

Cash flows provided by operations in the nine months ended March 31, 2025 were $70.1 million, including our net income of $0.3 million and non-cash expenses of $86.0 million for items such as amortization of intangible assets, share-based compensation, depreciation, reduction in carrying amount of right-of-use assets, deferred income taxes, provision for excess and obsolete inventory and interest. Other sources of cash for the period included a decrease in inventories and increases in deferred revenue and accrued compensation and benefits. This was partially offset by increases in accounts receivable and prepaid expenses and other assets as well as decreases in accounts payable, operating lease liabilities and other liabilities.

Cash flows provided by operations in the nine months ended March 31, 2024 were $40.0 million, including our net loss of $31.8 million and non-cash expenses of $109.3 million for items amortization of intangible assets, share-based compensation, depreciation, reduction in carrying amount of right-of-use assets, deferred income taxes, and interest. Other sources of cash for the period included a decrease in accounts receivable, and increases in deferred revenue and other current and long-term liabilities. This was partially offset by increases in inventories and prepaid expenses and other assets as well as decreases in accounts payable, operating lease liabilities and accrued compensation and benefits.

Net Cash Used in Investing Activities

Cash flows used in investing activities in the nine months ended March 31, 2025 were $18.1 million for the purchases of property and equipment and the capitalized software development costs.

Cash flows used in investing activities in the nine months ended March 31, 2024 were $13.6 million for the purchases of property and equipment.

Net Cash Used in Financing Activities

Cash flows used in financing activities in the nine months ended March 31, 2025 were $23.1 million primarily due to share repurchases of $13.0 million under the 2022 Repurchase Program, payments of $1.9 million for taxes paid on vested and released stock awards net of proceeds from the issuance of shares of our common stock under our Employee Stock Purchase Plan (“ESPP”) and exercise of stock options, a payment of $0.7 million for debt financing costs related to the Amended Credit Agreement, and debt repayments of $7.5 million.

Cash flows used in financing activities in the nine months ended March 31, 2024 were $109.9 million primarily due to payments of $27.6 million for taxes paid on vested and released stock awards net of proceeds from the issuance of shares of our common stock under our ESPP and exercise of stock options, share repurchases of $49.9 million under the 2022 Repurchase Program, a $25.0 million payment against our revolving facility, and debt repayments of $7.5 million.

Foreign Currency Effect on Cash and cash equivalents

Foreign currency effect on cash and cash equivalents increased in the nine months ended March 31, 2025, primarily due to changes in foreign currency exchange rates between the U.S. Dollar and particularly the Indian Rupee, the UK Pound and the Euro.

Contractual Obligations

As of March 31, 2025, we had contractual obligations resulting from our debt arrangement, agreements to purchase goods and services in the ordinary course of business and obligations under our operating lease arrangements.

Our debt obligations relate to amounts owed under our Amended Credit Agreement. As of March 31, 2025, we had $182.5 million of debt outstanding, which is payable on quarterly installments through our fiscal year 2028. We are subject to interest on our debt obligations and unused commitment fee. See Note 7, Debt, in the Notes to Condensed Consolidated Financial Statements in this Report for additional information regarding our debt obligations.

Our unconditional purchase obligations represent the purchase of long lead-time component inventory that our contract manufacturers procure in accordance with our forecast. We expect to honor the inventory purchase commitments within the next 12 months. As of March 31, 2025, we had non-cancelable commitments to purchase $36.0 million of inventory. See Note 8, Commitments and Contingencies, in the Notes to Condensed Consolidated Financial Statements for additional information regarding our purchase obligations.

We have contractual commitments to our suppliers which represent commitments for future services. As of March 31, 2025, we had contractual commitments of $19.4 million that are due through our fiscal year 2027.

We lease facilities under operating lease arrangements at various locations that expire at various dates through our fiscal year 2033. As of March 31, 2025, the value of our obligations under operating leases was $55.3 million.

We have immaterial income tax liabilities related to uncertain tax positions and we are unable to reasonably estimate the timing of the settlement of those liabilities.

We did not have any material commitments for capital expenditures as of March 31, 2025.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2025.

Interest Rate Sensitivity

Our exposure to market risk for changes in interest rates relates primarily to debt and foreign currencies.

Debt

At certain points in time, we are exposed to the impact of interest rate fluctuations, primarily in the form of variable rate borrowings from the Amended Credit Agreement, which is described in Note 7, Debt, in the Notes to Condensed Consolidated Financial Statements in this Report. At March 31, 2025, we had $182.5 million of debt outstanding, all of which was from the Amended Credit Agreement. During the quarter ended March 31, 2025, the average daily outstanding amount was $194.3 million, with a high of $215.0 million and a low of $182.5 million.

The following table presents hypothetical changes in interest expense for the quarter ended March 31, 2025, on the outstanding borrowings under the Amended Credit Agreement as of March 31, 2025, that are sensitive to changes in interest rates (in thousands):

* The underlying interest rate was 6.41% as of March 31, 2025.

Exchange Rate Sensitivity

A majority of our sales and expenses are denominated in United States Dollars. While we conduct some sales transactions and incur certain operating expenses in foreign currencies and expect to continue to do so, we do not anticipate that foreign exchange gains or losses will be significant, in part because of our foreign exchange risk management process discussed below.

Foreign Exchange Forward Contracts

We record all derivatives on the balance sheet at fair value. From time to time, we enter into foreign exchange forward contracts to mitigate the effect of gains and losses generated by the foreign currency forecast transactions related to certain operating expenses and re-measurement of certain assets and liabilities denominated in foreign currencies. Changes in the fair value of these foreign exchange forward contracts are offset largely by re-measurement of the underlying foreign currency denominated assets and liabilities. As of March 31, 2025 and 2024 foreign exchange forward contracts not designated as hedging instruments, had a notional amount of $52.2 million and $15.5 million, respectively. Changes in the fair value of derivatives are recognized in “Other income (expense), net.”

For the three months ended March 31, 2025 and 2024, the Company recognized foreign currency transaction net losses of $0.9 million and foreign currency transaction net gains of $0.7 million, respectively, and for the nine months ended March 31, 2025 and 2024, the Company recognized foreign currency transaction net gains of $0.5 million and foreign currency transaction net gains of $0.4 million, respectively, related to the change in fair value of foreign currency denominated assets and liabilities.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, such as this Report, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our CEO and CFO, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a – 15(f) and 15d – 15(f) under the Securities Exchange Act of 1934, as amended) during the three months ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Our controls and procedures are designed to provide reasonable assurance that our control system’s objective will be met, and our CEO and CFO have concluded that our disclosure controls and procedures are effective at the reasonable assurance level. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within Extreme Networks have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events. Projections of any evaluation of the effectiveness of controls in future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Notwithstanding these limitations, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Our CEO and CFO have concluded that our disclosure controls and procedures are, in fact, effective at the “reasonable assurance” level.

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2024, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended June 30, 2024 and our Quarterly reports on Form 10-Q for the three months period ended September 30, 2024 and December 31, 2024, except for the following risk factor which supplements the risk factors disclosed in the reports reference above.

Geopolitical changes are creating uncertainty regarding economic matters.

The ongoing unpredictability of U.S. trade policies, including recent tariff adjustments and shifts in enforcement priorities, continues to create significant uncertainty in the global supply chain. Our direct manufacturing presence in China remains minimal, and we do not anticipate material direct exposure to the latest round of U.S. tariffs on Chinese imports; however, our reliance on electronic and semiconductor components sourced from China presents ongoing risk. These components are essential to our products, and any escalation in tariffs or imposition of new export controls by China may result in increased costs and potential delays.

We also maintain significant manufacturing operations in Vietnam and the Philippines. These countries have periodically come under scrutiny in U.S. trade reviews and remain exposed to potential tariff hikes or new trade barriers.

Additionally, global trade partners may continue to respond to U.S. tariffs with retaliatory measures. For instance, China has reiterated threats of restricting exports of critical raw materials, including rare earth minerals essential to several of our components. Such actions could disrupt our supply chain, elevate input costs, and undermine the competitiveness of our offerings, thereby adversely affecting our business, financial condition, and operating results.

We are actively monitoring these evolving trade dynamics and are implementing diversification and supply chain resilience strategies to mitigate potential disruptions. This includes exploring alternative sourcing options and reassessing geographic risk in our manufacturing and logistics footprint.

The continued uncertainty around tariff policy and broader geopolitical tensions is contributing to market volatility, which has impacted the Company’s stock price, and is likely to continue to do so. In addition, if tariffs are set that materially impact the Company’s financial results, the Company’s stock price could be negatively impacted.

In addition to policies regarding tariffs, any significant changes enacted by the new administration to the U.S. Tax Code, or specifically to the Tax Cuts and Jobs Act (the “U.S. Tax Act”) enacted in 2017, or to regulatory guidance associated with the U.S. Tax Act, could materially adversely affect our tax liabilities and effective tax rate.

Our stock price has been volatile in the past and may significantly fluctuate in the future.

In the past, the trading price of shares of our common stock has fluctuated significantly. This could continue as we or our competitors announce new products, our results or those of our customers or competition fluctuate, conditions in the networking or semiconductor industry change, conditions in the global economy change, or when investors change their sentiment toward stocks in the networking technology sector.

In addition, fluctuations in our stock price and our enterprise value to sales valuation may make our stock attractive to momentum, hedge or day-trading investors who often shift funds into and out of stock rapidly, exacerbating price fluctuations in either direction, particularly when viewed on a quarterly basis. These fluctuations may adversely affect the trading price or liquidity of our common stock.

Some companies, including us, that have had volatile market prices for their securities have had securities class action lawsuits filed against them. Such suits, regardless of its merits or outcome, can result in substantial costs and divert management’s attention and resources.